Bloomberg News

WTI Crude Climbs After Flooding Shuts Alberta Pipelines to U.S.

June 24, 2013

West Texas Intermediate crude gained for the first time in four days after three pipelines in Alberta were shut because of flooding, sending Brent oil’s premium to WTI to the narrowest level in more than two years.

WTI futures advanced 1.6 percent, the biggest increase since June 3. Enbridge Inc. (ENB) has yet to restart the pipelines shut by a leak related to severe flooding and hasn’t offered a timeline for service resumption. Canada is the biggest source of U.S. crude imports, Energy Information Administration data show.

“There’s a lot of concern in the market about the situation in Alberta,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “It appears that the impact of the flooding will be worse that was earlier projected. The loss of Canadian barrels should increase the demand for U.S. grades such as WTI.”

WTI crude for August delivery rose $1.49 to settle at $95.18 a barrel on the New York Mercantile Exchange. Earlier, prices fell as much as $1.02 to $92.67 a barrel, the lowest level since June 4. The volume of all futures traded was 24 percent above the 100-day average for the time of day at 3:02 p.m.

Brent oil for August settlement increased 25 cents to end the session at $101.16 a barrel on the London-based ICE Futures Europe exchange. Volume for all contracts was 4.1 percent below the 100-day average for the time of day.

The European benchmark grade was at a premium of $5.98 to WTI, the lowest based on settlement prices since Jan. 18, 2011. It was $7.22 on June 21.

Enbridge Shutdowns

Enbridge closed the 12-inch Line 37, which carries synthetic crude from Nexen Inc.’s Long Lake oil-sands complex to Cheecham, Alberta, after discovering a 750-barrel spill on June 22 north of there. The Athabasca and Waupisoo lines, which carry crude south from oil-sands projects in Alberta, were shut as a precaution.

Heavy rain that has flooded parts of Alberta since last week may have caused the ground to move in the area of Line 37, affecting the line’s integrity, Enbridge said.

“If that oil cannot be pumped and is stuck up in Canada, then the market has to buy something else, which means another midcontinent type of crude and that is supportive of WTI,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “They can either buy WTI or other grades of Canadian crude that benchmarked off WTI.”

U.S. Stockpiles

Canadian crude is sent by pipelines to the central U.S., a region known as PADD 2, where supplies have dropped for three weeks, according to the EIA. Supplies at Cushing, Oklahoma, the delivery point for New York futures, slid 669,000 barrels to 48.6 million in the week ended June 14, the lowest level since December, the EIA said June 19.

“The flooding in Canada is likely to have an impact because the flows coming to the U.S. could slow down,” said Amrita Sen, chief oil market strategist at Energy Aspects Ltd., a research company in London. “If there is a prolonged outage, less Canadian crude comes into PADD 2, and into Cushing, WTI benefits. Some of the refineries in PADD 2 would take Cushing crude if they could not get Canadian crude.”

The WTI market moved into backwardation, with futures closest to expiration becoming more expensive than those for later delivery.

Middle East

Syria’s civil war ignited a new outbreak of sectarian violence in Lebanon, with at least 37 people reported killed in battles between the army and supporters of a cleric who declared holy war on Syrian President Bashar al-Assad. The conflict has bolstered concern that oil supplies from the Middle East may be disrupted and helped send WTI to a nine-month high last week.

The Middle East accounted for 33 percent of global crude output in 2012, according to BP Plc (BP/)’s Statistical Review of World Energy.

“There was an upsurge in violence in Lebanon and Syria over the weekend that should help keep a floor under prices,” Yawger said.

Hedge funds and other large speculators increased their net-long position on WTI crude to the highest level in almost 16 months just before a market selloff began on June 19.

Money managers bolstered net-long positions on WTI by 13 percent in the week ended June 18, according to the U.S. Commodity Futures Trading Commission. Managed money bets that prices will rise, in futures and options combined, outnumbered short positions by 262,239, the Washington-based regulator said in its weekly report on June 21.

‘Moving Violently’

“The market has been moving violently in large part because speculative net-long positions were so high,” said Carl Larry, president of Oil Outlooks & Opinions LLC in Houston.

Speculators and other money managers raised bullish bets on Brent crude to their highest level in four months, according to data from ICE Futures Europe. Speculative bets that prices will rise, in futures and options combined, outnumbered short positions by 185,653 lots in the week ended June 18, the exchange said today in its weekly Commitments of Traders report.

Implied volatility for at-the-money WTI options expiring in August was 22.1 percent, little changed from June 21, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 646,462 contracts as of 3:03 p.m. It totaled 683,777 contracts June 21, 11 percent above the three-month average. Open interest was 1.82 million contracts.

To contact the reporters on this story: Mark Shenk in New York at mshenk1@bloomberg.net; Barbara Powell in Houston at bpowell4@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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