Oil Prices Rise on Pipeline Shutdown Announcement

By Sarah Mcfarlane and Alison Sider Features Dow Jones Newswires

Oil prices were higher Monday, as an explosion in one of New York City's busiest transit hubs and expectations that cold weather will increase demand for fuel helped lifted prices.

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U.S. crude futures recently rose 20 cents, or 0.35%, to $57.56 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, rose 64 cents, or 1.01%, to $64.04 a barrel on ICE Futures Europe.

Prices rose Monday morning after a Bangladeshi man tried to set off an explosive device at New York City's Port Authority Bus Terminal.

"When the market get scared the hard assets tend to get bid up," said John Kilduff, founding partner at Again Capital.

And rising fuel prices also boosted crude prices.

Donald Morton, senior vice president at Herbert J. Sims Co., who oversees an energy trading desk, said fuel prices were pulling crude higher Monday morning, as a blast of cold weather prompted trader to buy distillates.

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"Crude oil is not leading it's only following. The leader is this weather-driven event," he said.

"Our distillate inventories are too low to go into winter."

Gasoline futures recently ticked up 0.4 cent, or 0.23%, to $1.7206 a gallon. Diesel futures rose 1.64 cents, or 0.85%, to $1.9452 a gallon.

But third consecutive week of increased drilling activity and uncertainty about how long the Organization of the Petroleum Exporting Countries will continue cutting production limited oil's gains.

On Friday, Baker Hughes Inc. reported that the number of rigs drilling for oil rose by two last week to 751.

"Given the recent price rises and the hedging activity we've seen and the rise in rig count, it seems almost inevitable that there's going to be a large rise in U.S. production next year," said Tom Pugh, commodities economist at Capital Economics.

Goldman Sachs said it expects production outside of the Organization of the Petroleum Exporting Countries to rise by 550,000 barrels a day in the fourth quarter.

"This is largely driven by the long awaited ramp-up in U.S. shale production, which accelerated in September," the bank said in a note.

The U.S. Energy Information Administration's weekly data showed U.S. output hit a record of over 9.7 million barrels a day in the week ended Dec. 1.

Oil prices have risen by around 30% over the past six months as efforts by OPEC and other producers to cut output have helped reduce global stocks, but higher prices are motivating those outside of the agreement to boost production.

Last month OPEC, along with other major producers including Russia, agreed to extend their production cuts by nine months to the end of 2018. But signals from some members that the cuts could be phased out earlier if the market is rebalanced by June weighed on prices.

"Despite the renewed OPEC commitment to rebalancing the market, our fundamental analysis shows moderate global stock builds going into 2018, and we expect the bullish momentum to fade," said analysts at Société Générale in a note published on Monday.

The bank forecasts front-month Brent to trade at $58 a barrel in the first quarter of 2018 and $56 in the second quarter.

Write to Sarah Mcfarlane at sarah.mcfarlane@wsj.com and Alison Sider at alison.sider@wsj.com

Oil prices rose and the global benchmark hit its highest level since 2015 Monday after the owner of a major European pipeline said it is shutting the system down for a period of weeks.

Ineos, the British refining and chemicals company, said it would shut down the Forties Pipeline System for a "matter of weeks" after a hairline fracture discovered last week grew.

The outage raised the prospect of a supply shortfall and comes as the global oil market has already become tighter following nearly a year of production cuts by the Organization of the Petroleum Exporting Countries and other major producers.

Brent crude rose $1.29, or 2.03%, to $64.69 a barrel on ICE Futures Europe -- its highest level since June 2015. U.S. crude futures rose 63 cents, or 1.1%, to $57.99 a barrel on the New York Mercantile Exchange.

The pipeline system carries about 445,000 barrels of crude a day through the North Sea. Some of that crude is used to create the Brent crude benchmark.

The 235-mile pipeline systems connects 85 North Sea oil and gas assets to the U.K. mainland, amounting to about 40% of the U.K.'s North Sea oil and gas production.

The outage could prompt more exports from the U.S. as European refiners scour the globe for crude to replace the lost North Sea output, said Andy Lipow, president of Lipow Oil Associates. Prices could remain elevated until it becomes clear how long the system will remain offline, he said.

"It's a significant supply disruption," he said. "This production is lost, and if refiners want to maintain their rates, they'll have to pull crude oil out of inventory somewhere in the world.

Oil prices have risen by around 30% over the past six months as efforts by OPEC and other producers to cut output have helped reduce global stocks.

Last month OPEC, along with other major producers including Russia, agreed to extend their production cuts by nine months to the end of 2018.

Still, higher prices are motivating those outside of the agreement to boost production.

"Despite the renewed OPEC commitment to rebalancing the market, our fundamental analysis shows moderate global stock builds going into 2018, and we expect the bullish momentum to fade," said analysts at Société Générale in a note published on Monday.

In addition, OPEC is set to re-examine its efforts when it meets in June, and signals from some members that the cuts could be phased out earlier if the market is rebalanced by June have weighed on prices at times.

Gasoline futures rose 1 cent, or 0.58%, to $1.7266 a gallon. Diesel futures rose 2.18 cents, or 1.13%, to $1.9506 a gallon.

Sarah Mcfarlane contributed to this article.

Write to Alison Sider at alison.sider@wsj.com and Neanda Salvaterra at neanda.salvaterra@wsj.com

(END) Dow Jones Newswires

December 11, 2017 16:07 ET (21:07 GMT)