Opec+ plays big role in supporting market stability

The Opec+ alliance plays an instrumental role in supporting market stability, Opec Secretary General Haitham Al Ghais said on the sixth anniversary of the group’s formation.

“Six years later, the framework continues to play an instrumental role in supporting market stability, which is essential for growth and development, as well as attracting the necessary investment to ensure energy security,” Al Ghais said in a statement.

Opec+, which groups together the Organization of Petroleum Exporting Countries (OPEC) and allies including Russia, last met on Dec. 4.

Separately, oil price settled lower in volatile trading on Friday, with both benchmarks recording their biggest weekly declines in months, as growing recession fears negated any supply woes after weak economic data from China, Europe and the United States.

US West Texas Intermediate crude settled 44 cents lower at $71.02 a barrel, a new low for 2022. Brent crude settled 5 cents lower at $76.10 per barrel.

“Any concerns about supply are secondary to worries about the economy,” Mizuho analyst Robert Yawger said.

oil prices had found some support and risen more than 1% earlier in the session after Russian President Vladimir Putin said the world’s biggest energy exporter could cut output in response to a price cap on its crude oil exports.

However, a slightly higher-than-expected rise in US producer prices in November, and news of a partial restart on the Keystone Pipeline undid those gains and pushed the benchmarks more than a dollar lower. Keystone shut earlier this week after a 14,000 barrel oil leak in Kansas.

Both crude benchmarks posted weekly losses of around 10% each. It was the biggest weekly decline since April for the US WTI futures, and since early August for Brent.

Both Yawger and Walter Zimmerman, chief technical analyst at ICAP, warned that if U.S. crude falls below $70 per barrel, it could enter a freefall and hit the low $60s range over the upcoming sessions.

The market structure for WTI contracts switched to trade in contango over the next year for the first time since Nov. 2020, with contracts for near-term delivery cheaper than one year later. Brent contracts have also switched to trade in contango over the next six months.

A market in contango suggests less worry about the current supply situation due to weakened demand, and encourages traders to put barrels in storage.

Separately, an outage on the largest oil pipeline to the United States from Canada could affect inventories at a key US storage hub and cut crude supplies to two oil refining centers, analysts and traders said on Friday.

TC Energy’s Keystone pipeline ferries about 600,000 barrels of Canadian crude per day (bpd) to the United States. It was shut late Wednesday after a breach spewed more than 14,000 barrels of oil into a Kansas creek, making it the largest crude spill in the United States in nearly a decade.

“The main question continues to be the duration of the potential outage... the longer the duration, ultimately, of course means potentially tighter inventories in Cushing or heavy (crude) on the Gulf Coast,” said Michael Tran, a managing director at RBC Capital markets.

The line runs directly to the Cushing, Oklahoma, storage hub, which is currently about a third full with nearly 24 million barrels in stock. If the outage last for more than 10 days, it could push Cushing storage to near the operational minimum of 20 million barrels, said AJ O’Donnell, a director at pipeline researcher East Daley Capital.

Volumes in the fourth quarter will be “materially affected,” as Keystone likely will run at a considerably lower pressure at least for some time once it restarts, said Harshit Gupta, Arc Independent research. Other pipelines between Canada and the United States are at or near capacity, East Daley and data analytics firm Wood Mackenzie estimates.

“There’s nowhere near enough to take 600,000 barrels a day. There’s just not enough pipe right now,” O’Donnell said.

The spill in Kansas took place downstream from a key junction in Steele City, Nebraska, where Keystone splits to run into Illinois. That stretch of the line could be restarted, but the other segment affected by the spill will not come back until regulators approve a restart.

TC Energy aims to restart on Saturday a pipeline segment that sends oil to Illinois, and another portion that brings oil to Cushing on Dec. 20, Bloomberg reported, citing sources. TC Energy said it was evaluating plans to return the pipeline to service.

Agencies