Oil Price Fundamental Daily Forecast – Keystone Shutdown Short-Term Bullish

U.S. West Texas Intermediate crude oil spiked to a 2-1/2 year high on Wednesday as traders responded to a report that showed faults on a major pipeline dented Canadian deliveries to the United States. International-benchmark Brent crude oil also posted a small gain after a small drop in U.S. inventories.

January WTI Crude Oil settled at $58.02, up $1.19 or +2.09% and February Brent Crude Oil finished the session at $62.99, up $0.67 or +1.08%.

Traders said the jump in prices was attributed to an 85 percent cut in the amount of oil TransCanada Corp will deliver to the United States on its Keystone pipeline through the end of November.

Keystone, which carries 590,000 barrels per day of crude from Alberta’s oil sands to markets in the United States, was shut last week after a 5,000-barrel spill in South Dakota.

According to the U.S. Energy Information Administration, crude inventories fell by 1.9 million barrels in the week to November 17, slightly more than analysts’ forecasts for a decrease of 1.5 million barrels, but much less than the 6.4 million-barrel draw reported by the American Petroleum Institute late Tuesday.

Additionally, U.S. crude imports fell last week by 487,000 barrels per day as exports rose 462,000 bpd. Crude production rose to another weekly record of 9.66 million bpd; monthly U.S. production exceeded 10 million bpd in the 1970s, according to government figures.

Forecast

U.S. crude oil futures markets are closed on Thursday in observance of Thanksgiving Day. Trading will resume on Friday.

Although WTI reached a 2 ½ high on Wednesday, driven by a legitimate reason, I’m going to hold off judgment on the move until most of the major traders return on Monday. I suspect that yesterday’s thin, pre-holiday volume may have contributed to the move.

Going forward, we’re going to continue to monitor the relationship between the Keystone announcement and inventory levels at Cushing, Oklahoma, the key U.S. storage hub and delivery point for U.S. crude oil futures.

Over the near-term, it’s possible we’re going to see additional draws in coming weeks, depending on how long the U.S.-Canada Keystone pipeline, which delivers to Cushing, is shut.

The Keystone news is likely to control the price action until other producers fill in the short-fall.