Loss of pipeline seen as hurting supplies
The shutdown of a key North American pipeline after an oil spill in Kansas is likely to roil the flow of crude supplies across the United States at a time when consumers were just starting to see some relief from surging fuel costs that had become a major domestic political issue.
TC Energy Corp. declared force majeure on its Keystone oil pipeline system after a spill into a Kansas creek, according to people familiar with the matter. The contract clause is used when a company encounters an unforeseen “act of God” and typically indicates that supply agreements are about to go unfulfilled. The massive crude pipeline, which can carry more than 600,000 barrels, was shuttered Wednesday night.
Keystone is a major conduit linking oil fields in Canada to refiners on the Gulf Coast, and any prolonged disruption will almost certainly put a dent in U.S. crude inventories. Already, stockpiles in Cushing, Okla., the nation’s largest storage hub, are at their lowest since July and at multiyear lows seasonally. Availability
has been tight after refineries ramped up processing in response to strong demand for gasoline.
West Texas Intermediate oil futures briefly jumped more than 4 percent, topping $75 per barrel, before the gains were trimmed. Physical crude prices
on the Gulf Coast also surged on expectations of tighter supplies after the outage.
The Keystone system begins in western Canada and runs to Nebraska, where it splits. One branch heads east to Illinois, and the other runs south through Oklahoma and onward to America’s
refining hub on the Texas Gulf Coast.
The spill follows several other leaks to hit Keystone in the past several years. The system was shut in October 2019 after it spilled thousands of barrels of oil in North Dakota.
Traders said they expect the latest outage to last upward of a week because it affects a waterway, which can potentially complicate cleanup efforts. Calgarybased TC didn’t immediately provide an estimate of how much crude leaked or a timeline for a restart.
The Nebraska Department of Environment and Energy confirmed the incident occurred in Kansas. The Pipeline and Hazardous Materials Safety Administration, a federal regulator, said it deployed personnel to the site of an oil leak near Washington, Kan., on Wednesday.
“PHMSA’S investigation of the cause of the leak is ongoing,” the agency said.
With refinery runs in the Midwest at their strongest since August, the U.S. crude market could now get very tight.
Gulf Coast sour crude prices also have risen in response to the outage. Mars Blend, a medium sour benchmark, strengthened by about 30 cents, according to Link Data Services.
In contrast, heavy crudes such as Western Canadian Select (WCS) in Canada declined by $4.70 a barrel, according to data from Bloomberg, as the outage threatens to back up more Canadian crude in the Hardisty area.