U.S. imports and refiners are affected by a critical Canada-U.S. pipeline failure

A failure of the biggest oil pipeline connecting the United States to Canada from Canada could impact inventories and reduce crude oil supplies to U.S. refineries, traders and analysts said Friday.

The Keystone pipeline of TC Energy, transports approximately 600,000 barrels per day (bpd), of Canadian crude oil to the United States. The pipeline was closed Wednesday night after more than 14,000 barrels oil were sprayed into a Kansas stream. This made it the worst crude oil spillage in America in almost a decade. Continue reading

TC Energy is yet to announce when the pipeline could be restarted, but operations were disrupted for 2 weeks by a Keystone leak.

Michael Tran (a RBC Capital Markets managing director) stated that “The most important question is the length of the possible outage…the longer the duration ultimately means potentially tighter inventory in Cushing and heavy (crude on the Gulf Coast).”

This line leads directly to Cushing Storage Hub in Oklahoma. It is about one-third full at the moment with almost 24 million barrels of stock.

Wood Mackenzie, a data analytics company, stated that Cushing stock levels could be reduced if the line is shut down for longer than one week.

If it lasts longer than 10 days, Cushing storage could be reduced to the minimum operational level of 20,000,000 barrels. This is according to AJ O’Donnell (Director at East Daley Capital), a pipeline researcher.

East Daley estimates that other pipelines connecting Canada to the United States have reached capacity. Wood Mackenzie also suggests this.

O’Donnell stated that there is not enough pipe to handle 600,000.00 barrels per day. O’Donnell stated that there is not enough pipe at the moment.

Refineries located in the U.S. Midwest could be affected more depending on the time the line is restarted.

Kansas was affected by the spillage at a critical junction near Steele City in Nebraska. This is where Keystone runs into Illinois. The line can be restarted on this stretch, but regulators will need to approve any restart of the remaining segment.

Gulf Coast refiners, on the other hand, can access more crude oil sources, from both offshore Louisiana facilities as well as from foreign countries such Mexico, Colombia and Ecuador.

However, Cushing still has the largest volume to the Gulf. After the leak, volumes on TC Energy’s Marketlink pipeline that runs from Cushing, Texas to Nederland (Texas) dropped by around 300,000. Nevertheless, they are now less than 500,000 bpd.

This could result in the Gulf Coast’s lack of Canadian heavy barrels.

U.S. crude oil grades were mixed Thursday. O’Donnell, East Daley Capital stated that volatility will continue so long as Keystone remains offline.

A prolonged shutdown could result in Canadian crude being trapped in Alberta and lower prices. However, the market reaction was muted on Friday.

According to a Calgary broker, Western Canada Select (WCS), Canada’s heavy-grade benchmark grade for December delivery, was last sold at $27.70/barrel below the U.S crude futures benchmark. WCS was traded at $33.50 below U.S crude on Thursday before falling to $28.45.

Paul Sankey from independent research company Sankey Research stated, “I’m stunned by the scale of the spillage and shocked at the market price reaction.”


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