DTN Oil

WASHINGTON, D.C. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange rallied more than 2% on Monday, climbing on the Keystone pipeline outage that is hindering deliveries of Canadian heavy crude oil to U.S. refiners in the Midwest and Gulf Coast, and could press inventory at the Cushing storage hub in Oklahoma to its minimum operational level.

The 610,000-bpd Keystone pipeline remained shut on Monday after a leak was detected in Kansas late Wednesday (12/7). TC Energy did not give a specific timeline or an update on the potential restart of the pipeline.

"Our teams continue to actively investigate the cause of the incident," said TC Energy on Sunday. "We have not confirmed a timeline for re-start and will only resume service when it is safe to do so, and with the approval of the regulator."

The affected segment of the pipeline cannot resume operation until regulators approve a restart plan in its entirety, according to a U.S. Department of Transportation statement.

Traders were concerned on Monday that cleanup efforts could take some time and force refiners in the Gulf Coast and Midwest to cut production into the Christmas holidays. Typically, refiners hold ten days of crude supply on hand.

What's more, the disruption could press Cushing crude storage levels down to its minimum operational level approximated at 20 million bbl. Stocks at Cushing were last measured at 23.9 million bbl as of Dec. 2, according to the Energy Information Administration after drawing down for five consecutive weeks. That compares with a Cushing stock level of 58.2 million bbl two years ago.

Further boosting the oil complex, crude exports from Russia's Black Sea terminals Tuape and Novorossiysk were suspended at the start of the week due to a reported storm. The disruption affects both the Urals and CPC oil blends -- key crude benchmarks for Russia and Kazakhstan. Both grades are highly sought after for the production of diesel and heavy fuel oil due to their sour content.

The unexpected disruption was further compounded by threats from Russian President Vladimir Putin that Moscow would cut oil production as much as needed in coming months, should the terms of the G7 plan to cap the price of Russian oil exports undermine revenues. Currently, Urals is trading in a range between $57 and $60 bbl, nearly matching the price ceiling of $60 agreed to by G7 and European nations.

Russian crude oil exports in early December remained as high as at any other point this year, according to private shipping data, with nearly 90% of all seaborne crude exports now heading to Asia. That flow swelled to more than 3 million bpd in the week-ended Dec. 9, accounting for 89% of all the crude shipped from Russian ports during the week, according to vessel-tracking data compiled by Bloomberg.

Despite the ongoing threats, it's unlikely that Russian oil production would take a big hit next year, with average forecasts ranging from a loss between 500,000 bpd and 1 million bpd. That's well below projections earlier in the year for a 3 million bpd drop in Russian output as Western countries threatened stiffer sanctions on Moscow for its invasion of Ukraine.

Oil futures were also supported today by production surveys showing crude output from the Organization of the Petroleum Exporting Countries and ten producers outside the cartel fell by 700,000 bpd in November -- the sharpest drop since April 2020. OPEC producers pumped 28 million bpd in the reviewed month, a fall of 850,000 bpd from October's output rate, while Russia and eight other producers pumped 13.7 million bpd, up 150,000 bpd.

At settlement, January West Texas Intermediate futures advanced $2.15 to $73.17 bbl, and February Brent futures on ICE added $1.89 to $77.99 bbl. NYMEX January RBOB futures gained $0.0249 to $2.0810 gallon and January ULSD futures surged $0.1748 to $2.9685 gallon.

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