Keystone pipeline shutdown: no market panic, but until when?

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Keystone pipeline shut down: no market panic, but until when?

TC Energy says 14,000 barrels of oil spilled in Kansas due to a leak in its Keystone pipeline.

The closure of the Keystone pipeline since Wednesday evening following a major oil spill in Kansas has again had little effect on the price of oil in Canada . Experts are divided on how long it will take before Canadian producers have to bring themselves to accept a bigger discount.

Commodity Context founder Rory Johnston expected a faster market response. Keystone is critical oil transportation infrastructure between heavy oil production in Alberta and the U.S. Gulf, he notes. He adds, however, that the uncertainty surrounding the spill may explain the delay in response.

TC Energy has not yet announced the cause of the spill or the duration of the closure. pipeline.

Keystone pipeline leaks worsen, US data shows

According to newsletter owner R Cube Economic Consulting and oil specialist Vijay Muralidharan, the complexity of calculating the differential hides the effects of this shutdown for now.

Oil from Alberta, Western Canadian Select (WCS), is in fact subject to two discounts compared to the price of oil on the American market, West Texas Intermediate (WTI). This differential is due on the one hand to the difference between crude oil and light oil and on the other hand to the cost of transport.

In recent months, the differential has reached the double its normal level because of the quality of the oil. Due to the war in Ukraine, the United States drew heavy crude oil from its strategic reserve, competing with oil from the Alberta tar sands.

The shutdown of Keystone, which was transporting more than 600,000 barrels of oil per day, however, deprived the markets of a supply of heavy crude, which reduced this differential. The light/crude differential has narrowed, but the costs to transport the barrel of oil have increased. The two changes cancel each other out and that is what we are seeing at the moment, he explains.

Vijay Muralidharan believes that the status quo will not last if the closure exceeds 10 days. This is where we will see the extent of the problem, he says.

The director of markets at the firm Enverus, Jesse Mercer, is rather of the opinion that the closure will have to exceed the month to panic the Canadian oil sector. There is a lot of storage capacity in Alberta, he explains. Data from Wood Mackenzie shows enough room in Canada for an additional 16 billion barrels.

Jesse Mercer says producers may prefer this option rather than accepting an increased discount or high transportation costs by sending the oil by train.

He adds that the location of the leak should allow TC Energy to restore part of the Keystone network. The company said the spill occurred south of Steele City, in the portion of the pipeline that heads into Oklahoma. A branch of the pipeline, however, goes to refineries in Illinois.

The company did not respond to questions on the subject, however.

The Alberta government is keeping an eye on the situation. In an email response, Department of Energy spokesman Scott Johnson said he expects a temporary effect on the differential between WCS and WTI. This is also why we are working to increase the availability of markets for Alberta energy, he wrote.

With information from Reuters

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