Oil extends rally above $58 as Keystone outage cuts U.S. supply

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An oil pump jack is seen at sunset in a field outside Scheibenhard, near Strasbourg, France, October 6, 2017. REUTERS/Christian Hartmann

CALGARY (Bloomberg) — Oil extended its rally above $58/bbl as supply disruptions on the Keystone pipeline added to optimism that the U.S. glut is waning and that OPEC will prolong its output curbs.

Futures gained as much as 0.7% in New York to a two-year high. TransCanada Corp. was said to have cut 85 percent of Keystone’s November shipments because of last week’s spill in South Dakota. The line’s shutdown means that between 550,000 and 600,000 bpd of crude is not heading to the Cushing, Oklahoma distribution hub, said Michael Loewen, a commodities strategist at Scotiabank.

“WTI is getting a bit of a bid from the Keystone outage,” Loewen said in a phone interview from Toronto.

Oil closed above $58/bbl in New York for the first time since mid-2015 on Wednesday amid signs that the Organization of Petroleum Exporting Countries and its allies may agree to prolong curbs when they meet on Nov. 30. The group will likely agree to extend output cuts by nine months to the end of next year, according to a Bloomberg survey of analysts and traders. Ministers from six OPEC countries and Russian Energy Minister Alexander Novak are holding informal talks in Bolivia a week before their meeting in Vienna.

“Most investors expect OPEC to extend the cuts through the end of 2018,” Loewen said. Once those cuts are ratified, prices should gain $2 to $3/bbl with West Texas Intermediate futures testing the $60 threshold, he said.

WTI futures for January delivery rose 54 cents, or 0.9%, to $58.56/bbl at 12:59 p.m. in New York, when trading halted, after touching $58.58, the highest since July 2015. There’ll be no settlement Thursday because of the Thanksgiving holiday in the U.S., and all transactions will be booked Friday. Total volume traded was about 69% below the 100-day average.

Brent crude rose 23 cents to $63.55/bbl. The global benchmark traded at a premium of $4.99 to WTI.

U.S. crude inventories declined by 1.86 MMbbl to about 457.1 million in the week ended Nov. 17, according to the Energy Information Administration. Crude stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest oil-storage hub, slid by 1.83 MMbbl, the largest draw since July. Meanwhile, American output surged for a fifth week to 9.66 MMbpd.

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