A view of the main deck of Tullow Oil's Floating Production, Storage and Offloading vessel. Picture: REUTERS
A view of the main deck of Tullow Oil's Floating Production, Storage and Offloading vessel. Picture: REUTERS

Singapore — US crude oil hit fresh two-year highs on Friday, as the shutdown of a major crude pipeline from Canada to the United States tightened North American markets.

Trading activity is expected to be very low on Friday due to the US Thanksgiving holiday.

US West Texas Intermediate (WTI) crude futures were at $58.37 a barrel at 2.06am GMT, up 35c or 0.6% from their last settlement. They reached a high of $58.58 a barrel earlier on Friday, the highest level since July 1 2015.

Brent crude futures were down 7c at $63.48.

In a sign of a tightening market, both crude benchmarks are in backwardation, where spot prices are higher than those for future delivery, which makes it unattractive for traders to store oil for later sale.

The closure of the 590,000-barrels-a-day Keystone pipeline, following a spill last week, has helped drive up US crude prices as it reduces stocks in the storage hub of Cushing, Oklahoma, traders said.

Imagine, though, if all the tensions in the Middle East, somehow derail the meeting. It’s a low-probability, high-impact possibility

Markets have also been tightening globally due to an effort by the Organisation of the Petroleum Exporting Countries (Opec) and a group of other producers, including Russia, to withhold 1.8-million barrels a day of production.

The deal to restrict output expires in March 2018, but Opec will meet on November 30 to discuss its policy, and it is expected to extend the cuts.

"The agenda for the Opec meeting is out and it’s only a three-hour meeting. That suggests a broad consensus has been built and the meeting is really just a rubber stamp to agree the extension of the Saudis’ favoured nine-month extension period," said Greg McKenna, chief market strategist at futures brokerage AxiTrader.

Despite this expectation, McKenna said there was a slight risk of the collaboration derailing.

"Imagine, though, if all the tensions in the Middle East, between the Saudis and Iranians and between other Gulf states and Qatar, somehow derail the meeting. It’s a low-probability, high-impact possibility," he said.

Overall, however, analysts said market fundamentals were balanced, supporting prices.

"Oil market fundamentals are improving with … robust global demand growth of around 1.7% this year (and 1.5% in 2018, versus 1.3% this year)," US investment bank Jefferies said.

"Growth in US output of 900,000 barrels a day this year (and in 2018) should not overwhelm the market," it said.

US oil production has jumped 15% since mid-2016 to a record 9.66-million barrels a day, thanks largely to shale drilling.

But Richard Robinson, manager of the Ashburton Global Energy Fund, warned growth could slow as operators struggle to get enough sand and water, both of which are needed in the shale production process, known as fracking.

"Logistics are a big bottleneck," he said.

Reuters

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