Opportunists Cause Oil To Rise Amid Uncertainty Over Keystone Reopening

Meanwhile, analysts predict the usual market volatility in the near term: File Image/Pixabay

Oil on Monday rose due to opportunistic rather than bullish sentiment, with traders swooping in to buy crude at the lowest price of 2022 in light of the Keystone Pipeline remaining shut and with no timeline for reopening.

Last week crude closed below its nine-day relative strength index for three days, suggesting that oil was oversold; this presented a buying opportunity for some traders, so after it was learned that TC Energy Corp. is continuing recovery efforts at its shuttered  pipeline, West Texas Intermediate rose $2.15, or 3 percent, to settle at $73.17 per barrel.

Brent settled up $1.89, or 2.5 percent, to $77.99 per barrel.

For the record, Keystone has spilled about 14,000 barrels since last week and almost 26,000 barrels of crude since 2010, more than any other pipeline; TC Energy is currently excavating the area of the spill (in Kansas) to inspect damage to the line in advance of submitting a restart plan.

Keystone may affect other areas of the energy sector, according to Jim Ritterbusch, president at Ritterbusch and Associates: "Keystone Pipeline repair appears to be taking longer than expected (and) upping the possibility of further stock draws at Cushing," but whether depleting tanks at the Oklahoma storage hub would trigger further gains for oil prices was unclear.

Francisco Blanch, head of commodity and derivatives research at Bank of America, told Bloomberg Television, "We have a bit of a soft patch right here; contango is happening but it is very front-loaded; you have a modest surplus you need to adjust for, and that's exactly what the market has done."

Meanwhile, Bank of America Global theorized that Brent could rebound past $90 per barrel if the U.S. Federal Reserve continues to moderate the severity of its monetary policy and if the economic reopening of China continues under that country's new softening of Covid restrictions.

However, UBS analysts warned in a note that "Oil markets will likely stay volatile in the near term amid uncertainty over the impact on Russia output from the European Union's ban, headlines on China's COVID policy, and central bank movements in the U.S. and Europe."

Deutsche Bank weighed in with its own near-term prognostication, stating in a note that "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 plays out [on Feb.5]."