Oil Price Fundamental Daily Forecast – US Pipeline Closure Adds to Concerns Over Potential Supply Tightness

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are trading higher for a second session on Tuesday on supply concerns.

The catalysts increasing worries about potential supply tightness is the shutdown of a key pipeline in the United States and Russian President Vladimir Putin’s threat to cut production. Essentially, both of these events are offsetting recent concerns over weaker demand.

At 08:18 GMT, January WTI crude oil is trading $74.24, up $1.07 or +1.46% and February Brent crude oil is at $79.15, up $1.16 or +1.49%. On Monday, the SPDR Gold Shares ETF (USO) settled at $165.68, down $1.38 or -0.83%.

Keystone Pipeline Remains Shut, Threatening Supply to Cushing

The closure of TC Energy Corp’s Keystone Pipeline, which ships 620,000 barrels per day of Canadian crude from Alberta to the United States, has raised the prospect that inventories at the Cushing, Oklahoma, storage hub will decline, Reuters reported. Cushing is also the delivery point for the WTI crude futures contract.

Keystone has remained shut since a 14,000-barrel leak in the U.S. state of Kansas was reported on Dec. 7. TC Energy has not released a timeline for a restart of the line, which carries crude to refineries in the Midwest and Gulf Coast.

Putin Says Russia Could Cut Oil Production Over ‘Stupid’ Price Cap

Russia, the world’s biggest exporter of energy, could cut oil production and will refuse to sell to any country that imposes the West’s “stupid” price cap on Russian oil, President Vladimir Putin said on Friday.

Putin further added that attempts by the West to impose a price cap would lead to the global collapse of the oil industry and then a catastrophic rise in prices.

Short-Term Outlook

January WI crude oil appears to have turned the corner after a successful test of a major long-term support zone at $72.31 – $63.73. For February Brent crude oil traders, the key support area is $75.95 – $67.76.

So far we’re only seeing short-covering. The markets are going to have to form a solid support base before the trend will change to up.

Although China has eased COVID restrictions, the event hasn’t helped prices. This is because the number of COVID infections remains high. Therefore, we haven’t seen the jump in demand that one would expect.

The best bullish catalyst at this time is the Keystone pipeline shutdown. However, we may not see the real impact of the loss until next week. In the meantime, traders are going to have to extrapolate the potential effect on supply through weekly inventories reports from the American Petroleum Institute (API) on Tuesday and the Energy Information Administration (EIA) on Wednesday.

Expectations are that the pipeline closure will cause U.S. crude inventories to decline. Seven analysts polled by Reuters estimated, on average that stockpiles dropped by 3.9 million barrels in the week to Dec. 9.