Global oil prices wavered between gains and losses Tuesday as traders weighed the impacts of the shutdown of a key European pipeline.
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Light, sweet crude for January delivery was recently down 30 cents, or 0.5%, at $57.69 a barrel on the New York Mercantile Exchange. Brent, the global benchmark, fell 30 cents, or 0.5%, to $64.39 a barrel.
Late Monday, British refining and chemicals company Ineos said it would shut down the Forties Pipeline System for several weeks after discovering a widening crack. The pipeline system delivers around 40% of U.K.'s North Sea oil and gas production, carrying about 445,000 barrels of crude a day.
"The pipeline outage is the big driver right now," said Tom Pugh, a commodities economist at Capital Economics. "When you take out so much oil out of the market, that inevitably adds to the tightness."
Brent prices rose to the highest level since 2015 before reversing losses, trading as high as $65.83.
"You've got one of the most important pipes on the planet down," said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. "The price slide would imply to me that the start time on the pipe has been shortened."
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Ineos said repairs of the Forties Pipeline System could take several weeks after the worsening of an onshore hairline fracture south of Aberdeen, Scotland. A small amount of oil has seeped from the pipeline, the company said, but the leak has been contained.
The outage comes as production cuts by the Organization of the Petroleum Exporting Countries and other major producers like Russia takes oil off what has been an oversupplied market. Last month, OPEC and its allies agreed to extend their production cuts by nine months to the end of 2018.
"Even if you do not believe that the extension of the OPEC/non-OPEC deal will boost the global rebalancing process, you would have found it impossible to resist buying oil futures," said Tamas Varga, analyst at PVM brokerage. The "closure of the Forties pipeline system for weeks is one of the most significant unplanned crude oil shortage we have seen this year," he said.
With some of the Forties crude underpinning the Brent crude benchmark, the global price was rising faster than WTI benchmark. This boosted the spread between Brent and WTI, trading around $7 a barrel, a welcome development for U.S. exporters to Europe.
The run-up in prices, however, could also prove self-defeating, as expensive crude incentivizes U.S. shale producers to ramp up activity. The U.S. oil rig count -- the number of active rigs drilling for oil -- has increased for three weeks in a row.
"The Forties outage gives U.S. producers a chance to get on the market and hedge their output," Mr. Pugh said.
Producers typically take advantage of rising oil by using hedges to lock in the higher prices. According to Citigroup, U.S. suppliers sped up hedging activities for their 2018 production in the third quarter. Over the course of the last quarter the hedge ratio for 2018 production jumped from 12% to 27%, the highest level of hedges since 2014, the bank said.
"High levels of hedge cover of 2018 production could bolster the growth outlook for U.S. shale next year," the bank said in a report.
Gasoline futures rose 0.4% to $1.7340 a gallon and diesel futures rose 0.3% to $1.9558 a gallon.
--Stephanie Yang and Neanda Salvaterra contributed to this article.
Write to Georgi Kantchev at firstname.lastname@example.org
(END) Dow Jones Newswires
December 12, 2017 11:01 ET (16:01 GMT)