Global benchmark Brent crude oil prices jumped above $65 per barrel for the first time in 2 1/2 years after the shutdown of the Forties North Sea pipeline knocked out significant supplies from a market that was already tightening due to OPEC-led production cuts.
Futures rose as much as 1.6 percent in London, set for the highest close since June 10, 2015, after advancing 2 percent Monday.
It will take about two weeks to repair the small hairline crack after was it was discovered on the North Sea Forties Pipeline System during a routine inspection, according to operator Ineos. In the U.S., crude stockpiles are forecast to drop the fourth week, a Bloomberg survey showed before government data Wednesday.
Oil is heading for a second yearly gain as the Organization of Petroleum Exporting Countries and its allies including Russia extend supply cuts through to the end of 2018. A strategy to exit the deal can be drafted in June if the market is no longer oversupplied by then, according to United Arab Emirates Energy Minister Suhail Al Mazrouei.
“If the market has some visibility on how long it’s going to take to repair the pipeline, that removes some of the uncertainty and reduces the risk premium,” said Ric Spooner, a Sydney-based analyst at CMC Markets. “The relatively high global inventories will possibly cap any rally we have from here.”
Brent for February settlement rose as much as $1.01 to $65.70 a barrel on the London-based ICE Futures Europe exchange and was at $65.33 at 8:04 a.m. London time. Prices gained $1.29 to $64.69 on Monday. The benchmark traded at a premium of $6.92 to February West Texas Intermediate.
WTI for January delivery climbed as much as 47 cents, or 0.8 percent, to $58.46 a barrel on the New York Mercantile Exchange after rising 1.1 percent Monday. Total volume traded was about 55 percent above the 100-day average.
The supplies that flow through the Forties Pipeline System are the single largest constituent part of so-called Dated Brent crude that helps to settle more than half the world’s physical oil prices. The shutdown forced Apache Corp. to suspend operations at its nearby Forties field.