Oil rises 3 percent to above $76 on U.S. supply outage

By David Sheppard

NEW YORK (BestGrowthStock) – U.S. crude rose 3 percent to hit a four-week high above $76 a barrel on Friday following the shutdown of a major pipeline supplying Canadian oil to the United States and potential for an extended outage.

The gain came despite the International Energy Agency saying that world oil demand would remain tepid.

The U.S. crude contract for delivery in October rose to a peak of $76.73 a barrel, the highest level since mid-August, after Enbridge Inc (ENB.TO: ) said pipeline 6A remained shut as the cleanup of an oil leak continued near Romeoville, Illinois.

“Since markets dislike uncertainty, they will usually discount a worst-case situation until some clarity is forthcoming,” Jim Ritterbusch, president at Ritterbusch & Associates in Galena, Illinois, said in a research note.

“In this particular case, the line will not only need to be repaired but regulatory approval will reportedly be required before shipments on the line are restarted.”

The front-month contract settled on Friday at $76.45, up $2.20, its biggest percentage gain in five weeks. Oil reversed losses earlier this week to close up by 2.5 percent from last Friday.

Trading volume was the highest since May with over 1 million contracts changing hands.

The November contract closed up $1.58 at $77.37 a barrel.

In contrast, Brent crude oil in London was up just 69 cents a barrel at $78.16, with concerns about the strength of global demand still weighing.

The IEA said global oil consumption growth was expected to increase a little this year but slip in 2011 and that fuel consumption could be much weaker if the world economy slows.

The agency, which advises major industrial countries on energy policy, said global oil supply was more than sufficient to meet demand, highlighting high levels of industry stocks across the developed world.

PIPELINE OUTAGE

The shutdown of Enbridge’s pipeline began pushing up crude futures prices on the New York Mercantile Exchange near the end of electronic trading on Thursday and saw a narrowing of Brent’s premium to U.S. benchmark.

Enbridge closed its 670,000 barrel-per-day (bpd) Line 6A, the largest of the company’s major three, after a leak was discovered near Romeoville. The duct accounts for 7 to 8 percent of total U.S. crude imports.

Canada shipped 1.75 million bpd to the United States in the week to September 3, making it by far the largest foreign supplier. Saudi Arabia, the No. 2 supplier, shipped 1.16 million bpd to U.S. markets last week, according to data from the U.S. Energy Information Administration.

Six weeks ago, Enbridge was forced to shut down another smaller part of its Lakehead system, which the U.S. government has not yet allowed to resume operations following heightened scrutiny because of BP Plc’s (BP.L: ) Gulf of Mexico spill.

Record stockpiles in the United States have this month depressed the price of U.S. benchmark crude relative to European Brent.

The Enbridge pipeline shutdown might help ease a glut at Cushing, Oklahoma — the pricing point for the main U.S. crude oil contract — which is chiefly supplied these days with Canadian oil.

Brent posted its biggest premium to U.S. crude since mid-May earlier this week at more than $3.50 a barrel, shrinking on Friday to just under $2.

“We don’t know the timeline for when the leak is likely to be fixed. We’re likely to see more draws in Cushing than was previously expected,” Amrita Sen of Barclays Capital said.

(Additional reporting by Gene Ramos in New York, Marie-Louise Gumuchian in London and Alejandro Barbajosa in Singapore; Editing by Lisa Shumaker)

Oil rises 3 percent to above $76 on U.S. supply outage