Oil prices increased this week for the first time since October. This rise was driven by supply jitters as a key pipeline supplying the United States closed and Russia threatened a production cut. These factors battled against China loosening its COVID-19 restrictions and bolstering the outlook for fuel demand, leading to a price increase.
The potential of a prolonged outage of TC Energy Corp's (TRP.TO) Canada-to-U.S. Keystone crude oil pipeline helped turn prices around from their previous losses. After more than 14,000 barrels of oil leaked last week, traders were left worried about how long it will take to clean up and restart the Keystone oil pipeline.
TC Energy Corp shut the pipeline after the spill was discovered late last Wednesday in Kansas. The company told officials in Washington County that they have not yet determined the cause or timeline for a restart. Officials were excavating around the 622,000 barrel-per-day Keystone line, a critical passageway for heavy Canadian crude shipped to U.S. refiners and to the Gulf Coast for export. This leak is the largest U.S. crude oil spill in nearly a decade.
"Keystone Pipeline repair appears to be taking longer than expected (and) upping the possibility of further stock draws at Cushing," said Jim Ritterbusch at Ritterbusch and Associates.
Meanwhile, China, the world's biggest crude oil importer, continued to loosen its strict zero-COVID policy. Despite this, the streets of Beijing remained quiet and many businesses remained closed over the weekend. On Monday, queues formed outside fever clinics in the cities of Beijing and Wuhan, where COVID first emerged three years ago.
On Friday, Russian President Vladimir Putin said that Russia could cut production and refuse to sell oil to any country that imposes a "stupid" price cap on Russian exports.
"The emergent EU embargo on Russian crude... may add moderate upside energy price risks in the next few months. But supply uncertainty should ease by Spring 2023, after the embargo on oil products (on Feb.5) plays out," Deutsche Bank said in a note.
With all of these components battling each other, with varying degrees of consequences week on week, a turbulent market is to be expected as we move through Winter.
"Oil markets will likely stay volatile in the near term amid uncertainty over the impact on Russian output from the EU's ban, headlines on China's COVID policy, and central bank movements in the U.S. and Europe," UBS analysts said in a note.
There is also some support for oil prices as forecasters predict extreme cold weather over much of the U.S., which could reach as far south as Texas. The Texan refinery industry is highly vulnerable to frost-related outages, as seen in February 2021, when a freak ice storm knocked out a large portion of refining capacity for several weeks.
