Oil Prices Increased By $2 Per Barrel Due To Supply Concerns

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Credit: Erik Mclean/Unsplash

On Monday, oil prices rose by roughly $2 per barrel due to supply concerns as a major pipeline that supplied the United States was shut down and Russia threatened to reduce production, even if China’s easing COVID-19 restrictions improved the outlook for fuel demand, as reported by UK Investing.

Oil demand 

Brent crude futures gained $1.89 or 2.5% to close at $77.99 a barrel. U.S. West Texas Intermediate crude increased $2.15 or 3% to settle at $73.17 per barrel.

Last week, investors worried that a potential global recession may damage oil demand, causing Brent and WTI to drop to their lowest levels since December 2021.

The likelihood of a protracted outage of the Canada-to-U.S. Keystone crude oil pipeline operated by TC Energy Corp. helped prices recover.

According to Ritterbusch & Associates’ Jim Ritterbusch, “Keystone Pipeline rehabilitation appears to be taking longer than anticipated (and) increasing the risk of further stock withdrawals at Cushing.”

Traders worried about how long it would take to clean up and restart the Keystone oil pipeline after more than 14,000 barrels of oil leaked last week, the largest U.S. crude oil spill in nearly a decade.

Reducing supplies

After the spill was found late last Wednesday in Kansas, TC Energy halted the pipeline. The business informed Washington County, Kansas, officials that they have not yet established the reason or timeframe for a restart. The 622,000 barrel per day Keystone line, a vital conduit for heavy Canadian crude supplied to American refineries and to the Gulf Coast for export, was being excavated by authorities.

At the storage hub and delivery location for benchmark U.S. crude oil futures in Cushing, Oklahoma, the disruption is predicted to reduce supplies.

According to a preliminary Reuters survey of seven analysts, global oil stockpiles decreased by around 3.9 million barrels in the week leading up to Dec. 9.

According to Bank of America’s (NYSE:BAC) Global Research, the U.S. Federal Reserve’s dovish turn in monetary policy and China’s “successful” economic openness might help Brent recover past $90 per barrel.

“China’s reopening is definitely something the market is focused on,” said Phil Flynn, analyst at Price Futures group.

Zero-Covid Policy

The world’s largest consumer of crude oil, China, continued to relax its rigorous zero-COVID policy, despite the fact that many businesses were closed over the weekend and streets in the capital city of Beijing remained quiet.

In the Chinese cities of Beijing and Wuhan, where COVID first surfaced three years ago, lines grew outside fever clinics on Monday.

According to a report from UBS analysts, “oil markets will likely remain turbulent in the near term amid uncertainties over the impact of the EU embargo on Russian output, stories on China’s COVID policy, and central bank movements in the U.S. and Europe.”

‘Stupid’ price

Vladimir Putin, the president of Russia, stated on Friday that his country may reduce output and would not sell oil to any nation that set a “stupid” price ceiling on Russian exports.

The energy minister for Saudi Arabia also stated on Sunday that price control measures had not yet produced any obvious results.

On Monday, the number of tankers waiting to cross Istanbul’s Bosphorus Strait decreased, indicating that the recent traffic congestion has eased.

“The impending EU embargo on Russian crude… could slightly increase the risks associated with rising energy prices in the coming months. However, supply uncertainties should subside by spring 2023 once the oil product embargo (which began on February 5) is ended “In a note, Deutsche Bank stated.

 

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Source: UK Investing

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