An outage on the largest oil pipeline to the United States from Canada could affect inventories at a key U.S. storage hub and cut crude supplies to two oil refining centers, analysts and traders said on Friday.
TC Energy's Keystone pipeline ferries about 600,000 barrels of Canadian crude per day (bpd) to the United States. It was shut late Wednesday after a breach spewed more than 14,000 barrels of oil into a Kansas creek, making it the largest crude spill in the United States in nearly a decade.
"The main question continues to be the duration of the potential outage... the longer the duration, ultimately, of course means potentially tighter inventories in Cushing or heavy (crude) on the Gulf Coast," said Michael Tran, a managing director at RBC Capital markets.
The line runs directly to the Cushing, Oklahoma, storage hub, which is currently about a third full with nearly 24 million barrels in stock.
If the outage last for more than 10 days, it could push Cushing storage to near the operational minimum of 20 million barrels, said AJ O'Donnell, a director at pipeline researcher East Daley Capital.
Volumes in the fourth quarter will be "materially affected," as Keystone likely will run at a considerably lower pressure at least for some time once it restarts, said Harshit Gupta, Arc Independent research.
Other pipelines between Canada and the United States are at or near capacity, East Daley and data analytics firm Wood Mackenzie estimates.
"There's nowhere near enough to take 600,000 barrels a day. There's just not enough pipe right now," O'Donnell said.
The spill in Kansas took place downstream from a key junction in Steele City, Nebraska, where Keystone splits to run into Illinois. That stretch of the line could be restarted, but the other segment affected by the spill will not come back until regulators approve a restart.
TC Energy aims to restart on Saturday a pipeline segment that sends oil to Illinois, and another portion that brings oil to Cushing on Dec. 20, Bloomberg reported, citing sources. TC Energy said it was evaluating plans to return the pipeline to service.
Volumes to the Gulf from Cushing have already dropped. Volumes on TC Energy's Marketlink pipeline, which flows from Cushing to Nederland, Texas, fell by about 300,000 bpd to less than 500,000 bpd, Wood Mackenzie estimates, after the leak was discovered.
Gulf Coast refiners, which could suffer shortages of heavy Canadian crude, can draw on supplies from offshore Louisiana facilities and from Colombia, Mexico and Ecuador.
U.S. physical crude oil grade prices were mixed on Thursday and O'Donnell at East Daley said he expects volatility to continue as long as Keystone remained offline.
Meanwhile, a lengthy shutdown of the pipeline could lead to Canadian crude getting bottlenecked in Alberta, and drive prices lower, although the market's reaction on Friday was muted.
Western Canada Select (WCS), the benchmark Canadian heavy grade, for December delivery last traded at a discount of $27.70 per barrel to the U.S crude futures benchmark, according to a Calgary-based broker. On Thursday, December WCS traded as low as $33.50 under U.S. crude, before settling at around a $28.45 discount.
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