Oil near 1-month highs on expected U.S. stock drop
Published September 14, 2010 | Reuters
Oil was steady on Tuesday near one-month highs above $77 ahead of inventory reports expected to show crude stock draws as the shutdown of the biggest Canada-U.S. pipeline enters a fifth day.
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Total U.S. crude inventories probably fell by 2.3 million barrels last week, their second straight weekly drop, after the shutdown of Enbridge's Line 6A cut imports, a Reuters poll showed ahead of weekly supply reports on Tuesday and Wednesday.
"No resumption in the Enbridge pipeline could be supportive for more days," said Ken Hasegawa, a commodity derivatives manager at Japan's Newedge brokerage. "Depending on how long the line is down, the market will try to break through $80 this week."
Crude stockpiles at Cushing, Oklahoma, the pricing point for the U.S. benchmark, have remained high for most of the summer, despite a series of drops in the past few weeks.
And the country's total petroleum inventories climbed to a new peak of 1,143,500,000 barrels in the week to Sept. 3, the highest since at least 1990, when the government began issuing weekly data.
"We can expect some decrease in stocks in some regions, but still no fears of a shortage," Newedge's Hasegawa said. "There is plenty of surplus."
Enbridge's Line 6A feeds right into the heart of the Midwest's oil network. The closure is affecting refineries in the region and storage at Cushing, where inventories fell more than 200,000 barrels to 35.54 million in the week to Sept. 3.
On Monday, there was still no estimate of when the troubled duct would resume shipments.
The Enbridge outage has the potential to reduce flows to Cushing by about 300,000 barrels per day (bpd), according to J.P. Morgan oil analysts, taking into account the possibility of pumping crude through alternative routes.
Line 6A was shipping 459,000 bpd when it leaked on Thursday, about two-thirds of its 670,000 bpd total capacity.
A small oil spill on Monday forced Enbridge to close a 70,000-bpd pipeline in New York State, just four days after a leak in Illinois forced the shutdown of the bigger line.
This week's inventory reports were expected to show little change in stocks of U.S. products. Distillates, including heating oil and diesel, rose about 300,000 barrels last week after two weeks of drawdowns, the poll showed, while gasoline inventories fell about 400,000 barrels. [end of excerpted article]
According to the Energy Information Agency, gasoline prices at the pump rose over 10 cents/gallon in the Midwest region last week - mostly because of the pipeline break - while prices dropped in most other parts of the country. Diesel prices were up slightly or down slightly in all regions. Supply issues are localized, while the country and the world have plenty. So currency fluctuations are more likely to affect prices more than supply and demand, over the next few months.
Crude prices at $70-80/barrel are adequate to encourage exploration and the development of new oil fields. Also, high enough to discourage wasteful uses, but low enough not to drag the economy lower than it is already headed.