Brent crude in London reached its highest since 2015 as a key North Sea pipeline shut down.
The Forties Pipeline System, one of the most important oil conduits in the world, is to be fully halted after a crack was discovered, the link’s operator Ineos said. The announcement boosted pricing that had been largely muted over the last week following an OPEC-led agreement by major producers to extend output curbs through the end of 2018. The Brent rally pulled New York futures up near $58 a barrel.
At the same time, the U.A.E.’s energy minister said Monday the group may draft a strategy in June to end the curbs if the market is no longer oversupplied. Brent, the global benchmark, rose as high as $64.71 a barrel while West Texas Intermediate climbed to as high as $57.86 a barrel.
“Brent is ripping,” said Bob Yawger, director of futures at Mizuho Securities USA Inc. in New York. “You really don’t have a lot of spare barrels before the supply situation becomes a problem.”
In addition, the WTI-Brent spread will “widen and encourage U.S. exports,” he said.
The pipeline system feeds crude to the Hound Point export terminal near Edinburgh in Scotland. At over 400,000 barrels a day, the supplies that flow through the link are the single largest constituent part of the Dated Brent grade that helps to settle more than half the world’s physical oil prices.
The Forties pipeline has more of an effect on pricing than its size merits because Brent is such an important benchmark for the global oil industry. The big question is how long it will take the leak to be sourced, fixed and whether they will then use this opportunity to run other maintenance.
Meanwhile Brent crude continues to hold its’ break above $60 and is back testing the upper side of a month-long range. A clear downward dynamic would be required to question medium-term scope for additional upside.
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