Crude Stockpiles Drop Sharply, Oil Prices Stable

Gladys Abbott
December 16, 2017

Oil prices wavered between gains and losses on Thursday, as traders weighed higher oil output against a major pipeline outage.

Futures have traded within a $2.47-a-barrel range around $57 this week.

"At present you can't ignore the impact of the Forties pipeline outage", said John Kilduff, partner at Again Capital Llc in New York, "It's a significant amount of oil that the market is going to miss and is missing".

"At this stage it is still too early to say how long the fix will take to complete, but it is expected to be a matter of weeks rather than days", Ineos said, adding that a number of fix options were now being assessed and developed.

Oil inventories were on the decline in the USA as OPEC and the International Energy Agency (IEA) cautioned about rising production.

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"It's been volatile", Torbjorn Kjus, analyst at DNB Bank ASA, said by phone.

US West Texas Intermediate (WTI) crude futures CLc1 were at $58.38 a barrel, up 39 cents, or 0.7 percent, from their last settlement. The large premium for Brent made WTI competitive on the global market, but any additional narrowing as a result of the Forties closure could spoil the advantage.

Ineos, the operator of the Forties pipeline, declared force majeure - that it is unable to fulfil contractual obligations - on crude deliveries following the discovery of the leaks. That's the first time in almost 30 years that such a condition has been declared in the North Sea, according to Gary Ross, founder of PIRA Energy, now part of S&P Global Platts.

Swiss-based chemicals company INEOS, which owns the Forties Pipeline System, said on Wednesday that it has not yet taken a decision on repairing a pipeling crack that materialised during a routine inspection of onshore infrastructure last week. Preliminary weekly data suggests that USA production increased further into early December. The group of producers agreed last month to extend curbs through the end of next year, yet concerns linger over whether compliance will remain strong for another 12 months at a time when drillers in the US are pumping out crude in a higher price environment.

The IEA also said it expects the oil market to have a surplus of 200,000 bpd in the first half of next year before reverting to a deficit of about 200,000 bpd in the second half.

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