Crude Futures Rise to One-Month High on Pipeline Shutdown

Strategic Insights -

Crude oil futures surged to a one-month high on Monday, reaching $77.50 a barrel on the New York Mercantile Exchange, as refiners scrambled to secure replacement oil supplies after a major pipeline shutdown. The Enbridge Energy Partners LP's 670,000-barrel-a-day Line 6a pipeline, which supplies over 3% of U.S. demand, was shut down due to a leak discovered in Illinois. The sharp price increase reflects the limited availability of oil supplies and the need for near-term deliveries, with October futures trading at a 71-cent discount to the second month.

Key Takeaways:

  • Crude oil futures rose to a one-month high of $77.50 a barrel after Enbridge Energy Partners LP shut down its 670,000-barrel-a-day Line 6a pipeline due to a leak.
  • The pipeline shutdown resulted in a 1.1% increase in light, sweet crude for October delivery, trading at $77.30 a barrel on the New York Mercantile Exchange.
  • Refiners across the Midwest scrambled to secure replacement oil supplies, leading to a growing need for near-term deliveries, with October futures trading at a 71-cent discount to the second month.
  • The Enbridge pipeline is one of the main links between Canada's oil sands region and Midwestern refiners, supplying over 3% of U.S. demand.
  • U.S. oil and fuel inventories are at levels not seen since the early 1980s, suggesting the effect of the shutdown is likely to be short-lived.
  • Tim Jennings with Vantage Trading predicted a hard selloff in oil prices once the leak is resolved.
  • The dollar's weakness also contributed to the price increase, making oil cheaper to purchase using other currencies.

Statistics:

  • Crude oil prices have shot up 3.8% since the Enbridge pipeline shutdown.
  • The intraday high of $77.50 a barrel was the highest since August 12.
  • Brent crude on the ICE futures exchange traded 35 cents, or 0.5%, higher at $78.51 a barrel.
  • The front-month contract now trades at a 71-cent discount to the second month, from $1.70 before the leak was discovered.
  • October futures are rising faster than the November contract.

Sources:

  • (C) 2010 Dow Jones & Company, Inc.
  • Dow Jones Commodities News via Comtex
  • By Brian Baskin, Dow Jones Newswires; 212-416-2453; brian.baskin@dowjones.com