Libyan pipeline attack closes 90 MBOPD
Oil prices are hovering near two-year highs, as pipeline action and stock draws vie for traders’ attention.
WTI crude is currently trading at $59.83/bbl, just below the $60.01/bbl reached in intraday trading earlier this week. This is quite a milestone, as WTI has not traded at $60/bbl since June 2015.Brent crude is also just off two-year highs, currently at $66.72. Brent hit $67.10 in intraday trading, the highest price for the grade since May 2015.
Investors have primarily been evaluating pipeline news, as several important developments have influenced global supply. A Libyan crude oil pipeline shut down on Tuesday after a major explosion occurred in the desert 80 miles south of the Es Sider terminal.
The blast cut output by about 90 MBOPD, damaging about 100 feet of the line according to the Chairman of Libya’s NOC. Statements by NOC officials suggest a terrorist group was responsible for the explosion, which occurred after the line was uncovered to repair an oil leak. Waha oil, a subsidiary of NOC, reports repairs will take about one week.
British Forties line slowly resumes operations
While the Libyan pipeline shutdown provides upward pressure on prices, the restart of the Forties line signals supply will return to the market. The Forties pipeline is Britain’s most important oil line, normally pumping about 450 MBOPD. A crack in the line forced a total shutdown on December 11, though, causing significant disruption to the British energy landscape and less severe effects to the overall oil market.
Forties is the biggest of the five North Sea crude streams underpinning Brent, the international crude benchmark. Ineos, the owner of the Forties line, declared force majeure on deliveries of crude. According to Reuters, this is the first force majeure on a major North Sea production stream in decades.
However, normality is starting to return. Flows through the line have recovered to about half the normal rate, and will continue to rise in the coming weeks.
Large inventory draws continue
U.S. crude inventories are falling gradually, as markets begin to approach the five-year average. Crude stocks have fallen steadily over the last six weeks, dropping by a combined 27 MMBOE. The 432 MMBOE currently in storage is only 9% above the five-year average. This is the lowest volume of oil in storage since 2015, when inventories began to grow rapidly.
Historically oil inventories rise in the beginning of the year, so even a few weeks of continued draws would go a long way to normalizing supplies.
