Oil rose to a one-month high on Monday after China's strong
industrial output signaled robust demand, while an extended
shutdown of the biggest Canada-U.S. crude pipeline raised
expectations of declining inventories.
U.S. crude for October climbed as much as 1.2 percent to $77.33
a barrel on the New York Mercantile Exchange (NYMEX), the highest
price since August 12, and was up 75 cents at $77.20 by 11:25 p.m.
EDT. October ICE Brent rose 40 cents to $78.56.
Chinese factories ramped up production by a larger-than-expected
13.9 percent in August, as the economy of the world's
second-largest oil user remained buoyant despite government efforts
to clamp down on bank lending.
"The Chinese data was overwhelmingly positive," said Ben
Westmore, a commodities analyst at National Australia Bank.
"China is in a soft landing after all the stimulus, and emerging
economies are growing quite strongly. In terms of oil use, that
portends strong demand in the coming months."
Enbridge's (ENB.TO) Line 6A, connecting Canadian production with
refineries in the Midwest and the pricing hub for U.S. crude
benchmark West Texas Intermediate (
) at Cushing, Oklahoma, remained shut on Sunday following a leak
three days earlier.
Although the source of the leak was found late on Sunday, no
date was set for restoring flows through the 670,000 barrel per day
(bpd) duct, which can carry 7-8 percent of total U.S. crude
"One of the big concerns has been the stocks at Cushing,"
Westmore said. "The longer the pipeline is down, the more likely it
is that these stocks are going to fall and the market tighten in
Canada is the largest oil exporter to the U.S. and Enbridge's
pipelines carry the lion's share of that. The shutdown of the
company's biggest line might help ease a glut in Cushing
The leak has the potential to reduce flows to Cushing by around
300,000 bpd, according to JP Morgan, taking into account
alternative routes and the fact that Line 6A was probably not being
used at full capacity when it leaked.
A section of the pipeline will have to be removed so the repair
can be made, the U.S. Environmental Protection Agency said. That
section will have to be replaced and inspections done by federal
regulators before use of the line can resume.
Heightened environmental scrutiny following BP's oil spill in
the Gulf of Mexico this year has prevented the resumption of flows
through a smaller Enbridge pipeline that was also closed because of
a leak six weeks ago.
"Such leaks are not unusual, and in normal circumstances we
would expect the line to be up and running in a matter of days,"
but a rapid restart of the most recently shuttered pipeline is
unlikely because of a "lengthy" environmental review process, JP
Morgan said in a note to investors.
The bank expects WTI to return to its usual premium to Brent.
While the front-month contract traded more than $3.50 a barrel
below the European benchmark early last week, on Monday that
discount had shrank to less than $1.50.
The dollar weakened and Asian equities rose after positive
economic signs also came from top oil consumer the United States,
where wholesale inventories surged the most in two years in July,
according to a report on Friday.
"You get this dual effect of more confidence in U.S. oil demand
and the fears of a slowdown in emerging economies being allayed,"
Hurricane Igor strengthened rapidly over the Atlantic Ocean on
Sunday, becoming a large and dangerous Category 4 storm, but its
forecast trajectory kept it in the Atlantic heading toward Bermuda
at least for the next five days, away from oil and gas
infrastructure in the Gulf of Mexico.
Behind Igor, the U.S. National Hurricane Center (
) said a tropical depression off the southernmost Cape Verde
islands was just below cyclone strength, poised to become Tropical
Storm Julia at any time.
The NHC was also monitoring a low pressure system over the
east-central Caribbean that it said could develop into a tropical
cyclone over the next couple of days.
(Reporting by Alejandro Barbajosa; Editing by Manash