Light, sweet crude oil gained on Dec. 12, settling just under $58/bbl on the New York market while Brent crude oil jumped more than a $1 for a second consecutive day to settle well above $64/bbl.
Brent settled at its highest point since June 2015 after Ineos, a British refining and chemicals company, announced it was shutting the Forties Pipeline System for “weeks” because it found a hairline fracture (OGJ Online, Dec. 12, 2017).
The pipeline system carries about 445,000 b/d of crude oil across the North Sea, including oil that becomes the benchmark Brent crude. Analysts said the outage raises the possibility of a crude supply shortfall.
World oil markets already are tighter following production cuts by the Organization of Petroleum Exporting Countries and other major producers.
Meanwhile, OPEC and the International Energy Agency separately are scheduled to publish monthly market reports on Dec. 13.
Massimo Di-Odoardo, principal analyst for gas and LNG at Wood Mackenzie Ltd., commented on the European market outlook.
“The Forties outage will take out more than 1.2 bcfd of gas production—more than 10% of UK gas demand,” he said. In addition, an explosion at a gas hub in Baumgarten, Austria, has halted Russian imports to Italy, representing more than 30% of Italian gas demand.
“There is still plenty of storage across Europe to cope with this,” Di-Odoardo said. “But if supply does not resume soon and the cold weather continues, prices will remain strong through the winter. We might well see some competition between Europe and Asia to attract LNG this winter.”
Andy Lipow, president of Lipow Oil Associates, told the Wall Street Journal the pipeline outage could trigger more US oil exports while European refiners seek crude to replace the lost North Sea supplies.
Lipow believes prices could remain elevated until Ineos at least clarifies how long pipeline repair will take.
“It’s a significant supply disruption,” he said. “This production is lost, and if refiners want to maintain their rates, they’ll have to pull crude oil out of inventory somewhere in the world.”
Separately, Royal Bank of Canada analysts increased RBC’s 2018 average price forecast for US light, sweet crude $58/bbl from $53/bbl and Brent’s 2018 average forecast of $62.30/bbl from $55.50/bbl.
“While we see prices as largely range-bound, next year is fraught with potential gap risk given that many variables have upward skew potential,” RBC said.
Energy prices
The January 2018 light, sweet crude contract on the New York Mercantile Exchange gained 63¢ on Dec. 11 to $57.99/bbl. The February contract climbed 61¢ to $58.05/bbl.
The NYMEX natural gas price for January 2018 rose a rounded 6¢ to a rounded $2.83/MMbtu. The Henry Hub cash gas price was $2.80/MMbtu, up 5¢.
Ultralow-sulfur diesel for January 2018 rose 2¢ to a rounded $1.95/gal. The NYMEX reformulated gasoline blendstock for January 2018 increased 1¢ to a rounded $1.73/gal.
The Brent crude contract for February 2018 on London’s ICE gained $1.29 to $64.69/bbl. The March 2018 contract moved up 97¢ to $64/bbl.
The gas oil contract for January was $572.75/tonne.
OPEC’s basket of crudes was $61.94/bbl on Dec. 11, up 91¢.
Contact Paula Dittrick at [email protected].
