DTN Oil

WASHINGTON, D.C. (DTN) -- West Texas Intermediate futures on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange settled lower for the fifth consecutive session on Thursday despite a supply disruption in the U.S. Midwest with the shutdown of the Keystone Pipeline due to a leak and hope for a broader reopening of the Chinese economy.

January WTI futures rallied 4.7% as news of the overnight shutdown of the 2,687-mile Keystone system was promulgated across the market.

"Pursuant to our incident protocols, an emergency shutdown and response was initiated at approximately 8 p.m. CT, on Dec. 7, 2022, after alarms and a detected pressure drop in the system. The system remains shutdown as our crews actively respond and work to contain and recover the oil," said TC Canada.

The cross border pipeline delivers 610,000 bpd of crude oil from Hardisty, Alberta, to Steele City, Nebraska, where it splits. One leg moves east to Pakota, Illinois, and the second leg continues south to Cushing, Oklahoma.

TC Canada remained mum on a restart timeline, although market reaction suggests expectations for a quick resumption of operations.

January WTI futures reversed the early advance and ended down $0.55 at $71.46 bbl -- a fresh 12-month low settlement on the spot continuous chart. February Brent futures on ICE fell $1.02 to $76.15 bbl -- the lowest settlement on a spot continuous basis since late December 2021.

Thursday's lower settlements were realized despite news of further easing of zero-COVID policies in China, where rolling lockdowns over the past three years have sapped economic growth and demand for oil. The new directive comes just days after widespread protests against harsh lockdowns and government overreach swept across the country. The new measures include but are not limited to -- replacing mandatory quarantine requirements at the government facility to isolation at home; limiting high-risk areas to apartment units and blocks instead of entire neighborhood or streets; expanding a vaccination program for the elderly.

November trade data showed just how deep the impact of the rolling lockdowns has been on China's battered economy, with exports and imports falling to nearly 2020 lows in November. Exports fell by 8.7% last month from a year earlier to $296 billion following a 0.3% decline in October, data released by Chinese Customs showed on Wednesday. Shipments to the U.S. tumbled 25.43% compared to the same period last year, while exports to the European Union fell by 10.62% year on year, customs data showed.

Domestically, slowing demand for gasoline and distillate fuels are leading to sharply higher inventories, with the U.S. Energy Information Administration on Wednesday reporting a combined 11.5 million bbl build for the fuels during the week-ended Dec. 2.

EIA reported gasoline supplied to the U.S. market averaged 8.436 million bpd during the four weeks ended Dec. 2, 647,000 bpd or 7.1% below the comparable year-ago period. Distillate fuels implied demand over the same timeline averaged 3.729 million bpd, 403,000 bpd or 9.8% less than the corresponding four weeks in 2021.

NYMEX January RBOB futures dropped $0.0281 to $2.0491 gallon -- a fresh 12-month spot low. In contrast, January ULSD futures rallied $0.0993 to $2.8798 gallon.

Liubov Georges can be reached at liubov.georges@dtn.com