Crude Gains After U.S. Pipeline Shut, Report Shows Import Surge by China

Bloomberg.com   |  September 10 2010 1:44 EDT

Oil rose the most in six weeks after a pipeline that carries Canadian crude to refineries in the U.S. Midwest was closed because of a leak.

Futures increased as much as 3.1 percent after Enbridge Energy Partners LP shut its Line 6A, part of a system that can transport 670,000 barrels a day from Canada. Chinese customs figures showed that net imports of crude climbed by 10 percent in August from the previous month.

“It’s all about Enbridge,” said Tom Bentz, a broker with BNP Paribas Commodity Futures Inc. in New York. “It’s a big line, which supplies a bunch of refineries in the Midwest. Depending on how long it is shut, this could put a big-sized crimp on supplies in the region.”

Crude oil for October delivery climbed $2.13, or 2.9 percent, to $76.38 a barrel at 1:10 p.m. on the New York Mercantile Exchange. The contract touched $76.56, the highest level since Aug. 17. Futures are up 2.4 percent this week.

Oil surged the most since Aug. 2, when prices rose above $81 a barrel for the first time since May as a global equity rally bolstered optimism the economy is strengthening.

Brent crude oil for October settlement climbed 67 cents, or 0.9 percent, to $78.14 a barrel on the London-based ICE Futures Europe exchange.

Brent’s premium over New York oil shrank following the pipeline leak. The London-traded contract was $1.76 higher than Nymex oil, compared with a premium of $3.65 on Sept. 7.

Crews are investigating the pipeline situation, said Glenn Herchak, an Enbridge spokesman. He declined to provide information on what the line was carrying and if it was operating at full rates.

Illinois Refineries

The leak occurred at Romeoville, about 30 miles (48 kilometers) southwest of Chicago. The closest refinery is Citgo Petroleum Corp.’s 170,500-barrel-a-day Lemont plant. There are four refineries in Illinois with a combined operable capacity of 973,000 barrels a day, 5.6 percent of the U.S. total, according to the Energy Department.

“The concern is that refiners are going to have to look elsewhere for alternative supplies,” said Hamza Khan, an analyst at the Schork Group in Villanova, Pennsylvania.

Canada is the largest source of U.S. imports, sending 2.2 million barrels a day in June, according to the Energy Department. More than a quarter of that arrives by pipeline into the Chicago area.

“This cuts U.S. imports of crude and could translate into falling U.S. inventories, leaving Midwest refiners short of feedstock,” said Tim Evans, an analyst at Citi Futures Perspective in New York. “It’s important to remember this is a logistics issue. Probably the same number of barrels are coming out of the ground in Canada and their arrival will be delayed.”

Global Demand

The International Energy Agency left its estimate for oil demand for this and next year little changed. Demand worldwide will average 87.9 million barrels a day in 2011, the IEA said today in its monthly Oil Market Report, unchanged from last month’s forecast. The IEA revised its 2010 estimate 50,000 barrels a day higher to 86.6 million.

China’s net crude purchases rose to 20.65 million metric tons, or 5 million barrels a day, from 18.8 million in July, according to preliminary data released today by the Beijing- based General Administration of Customs. Net imports of oil products doubled to 490,000 tons.

“The news out of China once again points to the one bright spot in this market, growing Asian demand,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.

Japan GDP

Japan’s gross domestic product grew at an annualized 1.5 percent rate in the three months ended June 30, a Cabinet Office report showed, faster than the 0.4 percent reported last month.

China and Japan are the second-and-third biggest oil consuming countries, after the U.S., accounting for 15 percent of global demand in 2009, according to BP Plc, which publishes its BP Statistical Review of World Energy each June.

Oil volume on the Nymex was 757,596 contracts as of 1:09 p.m. in New York. Volume totaled 778,344 contracts yesterday, 26 percent