An outage on the largest oil pipeline to the United States from Canada could affect inventories at a key U.S. storage hub and reduce crude supplies to two oil refining hubs, analysts and traders said on Friday.
TC Energy’s TRP.TOKeystone pipeline transports approximately 600,000 barrels per day (bpd) of Canadian crude oil to the United States. It was shut down late Wednesday after a breakthrough spewed more than 14,000 barrels of oil into a Kansas creek, making it the largest crude oil spill in the United States in nearly a decade.
Read more:
Canada’s gas prices have fallen — but that may not last long, analysts warn
Read more
-
![]()
Canada’s gas prices have fallen — but that may not last long, analysts warn
While TC Energy has not yet said when it might restart the pipeline, a previous Keystone spill affected operations for two weeks.
“The main question is still the duration of the potential outage … the longer the duration, ultimately, obviously 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 center, which is currently about one-third full with nearly 24 million barrels in storage.
If the line is shut down for more than a week, it could reduce Cushing inventories by about 2.5 million barrels, data analysis firm Wood Mackenzie said.
If the outage lasts 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.
Other pipelines between Canada and the United States are at or near capacity, East Daley and Wood Mackenzie estimate.
“There is not nearly enough to take 600,000 barrels a day. There just isn’t enough pipe right now,” O’Donnell said.
Refineries in the US Midwest could be more affected depending on when the line is restarted.
READ MORE: Gas prices in southern Ontario will drop another 4 cents/litre on Thursday, analyst says
The spill in Kansas occurred downstream of a key junction in Steele City, Nebraska, where Keystone splits to flow into Illinois. That stretch of the line can be restarted, but the other segment affected by the spill won’t come back until regulators approve a restart.
By contrast, Gulf Coast refiners can tap more sources for crude oil, both from offshore Louisiana facilities and from countries such as Colombia, Mexico and Ecuador.
Yet volumes to the Gulf of Cushing have already fallen. Volumes on TC Energy’s Marketlink pipeline, which flows from Cushing to Nederland, Texas, fell by about 300,000 bpd to less than 500,000 bpd, Wood Mackenzie estimates, after the leak was discovered.
That could leave Gulf Coast refineries short of heavy Canadian barrels.
U.S. physical crude prices were mixed on Thursday and O’Donnell at East Daley Capital said he expects volatility to continue as long as Keystone remains offline.
Meanwhile, a long pipeline shutdown could lead to a bottleneck in Canadian crude in Alberta, sending prices lower, although the market’s reaction was muted on Friday.
Western Canada Select (WCS), the Canadian benchmark for delivery in December, last traded at a discount of $27.70 a barrel to the U.S. crude futures benchmark, according to a Calgary-based broker. On Thursday, December WCS traded as low as $33.50 below U.S. crude, before settling at a discount of around $28.45.
“I’m shocked at the scale of the spill and I’m shocked at the lack of market price response,” said Paul Sankey, an analyst at independent research firm Sankey Research.
(Reporting by Arathy Somasekhar in Houston, Laura Sanicola in Washington, Nia Williams in Calgary and Shariq Khan in Bengaluru; Editing by Marguerita Choy)
