Oil boosted gains on Tuesday as a major US pipeline remained closed, raising concerns about a potential supply squeeze in the world’s largest consumer of crude oil. Crude oil rose as supply-side problems offset concerns about weak demand.
Brent crude futures rose $1.16, or 1.5%, to $79.15 a barrel, while West Texas Intermediate (WTI) crude futures rose $1.05, or 1.4%, to $74.22 a barrel.
Both benchmarks rose more than 2% in the previous session.
Concerns over Russia’s oil production have grown since Russian President Vladimir Putin said on Friday that Russia could cut production.
The closure of the Keystone Pipeline, which carries about 620,000 barrels of Canadian crude a day from Alberta to the United States, has narrowed supply and increased the likelihood of dropping inventories at the Cushing, Oklahoma, storage center. Cushing is the delivery point for the WTI crude oil futures contract.
Keystone has remained closed since a 14,000-barrel leak was reported in the US state of Kansas on Dec. TC Energy has not released a timeline for the resumption of the pipeline, which carries crude to refineries in the Midwest and Gulf Coast.
Expectations are that the closure of the pipeline will cause US crude inventories to fall. Inventories are estimated to have dropped, on average, by 3.9 million barrels in the week through December 9. Distillates probably rose.
The reports of the American Petroleum Institute (API) on Tuesday and the Energy Information Administration (EIA), the statistical arm of the US Department of Energy, on Wednesday will provide more precise information.
Expectations that the relaxation of COVID-19 restrictions in China, the world’s second-largest oil user, will increase demand also supported oil prices.
A successful economic reopening in China, coupled with the US Federal Reserve’s dovish return on rate hikes, is likely to boost fuel demand and push Brent oil prices above $90 a barrel again.
China is further easing COVID controls. Some strict COVID restrictions were lifted last week, such as relaxing COVID tests and stopping people from tracking their travel records. Lifting restrictions will facilitate the recovery of domestic transport and travel demand.
But at the same time, warnings persist that rising COVID infections in major Chinese cities are still reining in market sentiment, and clearer signals of demand recovery are needed to provide a solid support for oil prices.
