Oil Lower on Keystone Restart

NEW YORK (DTN) -- New York Mercantile Exchange oil futures were lower Tuesday morning after TransCanada announced it would restart Keystone Pipeline that has been shut for nearly two weeks following a leak in South Dakota.

Late Monday, TransCanada said that the U.S. government reviewed and approved the repairs made on the pipeline, clearing the way for the line to be put back in service on Tuesday. The 2,147-mile pipeline ships crude oil from Canada's Alberta province to the U.S. Gulf Coast and its restart would ensure more supply. A Nov. 16 leak in South Dakota's Marshall County forced the operator to shut the pipeline.

The market is also focused on U.S. oil production as well as output by the Organization of Petroleum of Exporting Countries. Domestic stocks are estimated to have been drawn down during the week-ended Nov. 24, but U.S. crude production is expected to continue rising.

There is some concern that OPEC may fall short of expectations for an extension of current production cuts at their summit set for Thursday.

Oil ministers from OPEC's 14 member countries and their 10 nonmember allies began arriving in Vienna for their biannual summit scheduled for Nov. 30. On their agenda is a plan to extend production cuts of 1.8 million bpd beyond the end of the first quarter.

Saudi Arabia has proposed a nine-month extension to December 2018 and several OPEC members have openly expressed support for that proposal, but non-OPEC Russia appears to have mixed feelings about the move.

"The expected deal to extend production cuts would further postpone significant Russian production capacity increases, especially for the influential Rosneft," said ESAI Energy in a note this morning. "On balance, we believe the deal will be extended, perhaps in phases, but Russia producers will increasingly resist compliance, leading to its eventual unraveling in 2018."

A stronger U.S dollar and overbought market condition added selling pressure on the futures complex this morning. NYMEX January West Texas Intermediate crude futures contract, which rallied last Friday to 29-month high of $59.05, is above 90% overbought, putting the market in a position for a possible 2-week reversal this week with initial support at a four-week low of $54.81, according to DTN analyst Darin Newsom.

At last look, NYMEX January WTI crude futures fell 30cts to $57.81 bbl, off a $57.42 three-day low.

ICE January Brent crude, which is set to expire on Thursday (11/30), fell 47cts to $63.37 bbl, trading at a 40cts premium to the February contract. The February Brent contract was 41cts lower at $62.97 bbl. In spread trading, Brent's premium to WTI narrowed by 17cts to $5.56.

In products trade, NYMEX December ULSD futures eased 0.56cts to $1.9422 gallon, with January contract down 0.55cts at $1.9450 gallon. December RBOB futures tumble 1.78cts to $1.7715 gallon, with January contract down 1.78cts to $1.7673 gallon.

George Orwel can be reached at george.orwel@dtn.com