- Keystone pipeline from Canada shut after oil spill
- U.S. crude inventories drop further, WTI crude forward price curve has moved into backwardation
- Saudi Arabia lobbies for extended OPEC production cuts
Oil prices eased on Thursday, with U.S. crude falling away from two-year highs reached the day before, but the shutdown of the Keystone pipeline and a drawdown in fuel inventories continued to bolster markets despite worries over rising output.
U.S. West Texas Intermediate (WTI) crude futures were at $57.89 a barrel at 0749 GMT, down 13 cents, or 0.2 percent, from their last settlement, but still close to 2015-highs of $58.15 a barrel reached on Wednesday.
Brent crude futures were at $63.14 per barrel, 18 cents, or 0.3 percent, below their last close.
WTI has been buoyed by the shutdown of the 590,000 barrel-per-day (bpd) Keystone pipeline, one of the largest crude pipelines from Canada to the United States, as well as by another drawdown in commercial fuel inventories that came despite record U.S. oil production.
“Lower supplies into the U.S. from the north and robust exports from the south are likely to support a further reduction in U.S. inventories,” said Ole Hansen, head of commodity strategy at Saxo Bank.
U.S. crude inventories fell 1.9 million barrels in the week to Nov. 17, to 457.14 million barrels. Stocks have dropped by 15 percent from their records in March, to below 2016 levels.
The inventory drop came as the Keystone pipeline connecting Canada’s oilfields to the United States was shut last week after an oil spill in South Dakota. Operator TransCanada is cutting deliveries at least until the end of November.
In a sign of a tightening market, the WTI forward curve has moved from contango, when prices for future delivery are more expensive than those for immediate dispatch, into backwardation, where spot prices are higher than those for later delivery.
Markets are also tightening globally due to an effort led by the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC producers, including Russia, to withhold output.
The deal to curb production is due to expire next March, but OPEC will meet on Nov. 30 to discuss the the policy, and top exporter and de-facto OPEC leader Saudi Arabia is lobbying for extended cuts.
Threatening to undermine OPEC’s efforts, however, is U.S. production, which has risen by 15 percent since mid-2016 to a record 9.66 million bpd.
This has turned the United States from the world’s biggest importer of crude oil into a significant exporter, with production now second only to Russia and Saudi Arabia.
“The U.S. will, without question of doubt, be the biggest oil producer in the world in the next 5 years. They are producing… at half the cost than they were just two years ago,” said Matt Stanley, fuel broker at Freight Investor Services in Dubai.