Oil prices edged lower on Thursday on the prospect of a major crude pipeline that shut after a leak resuming service, which would return a hefty amount of crude to the market at a time when global economic slowdowns are raising fuel demand fears.
Brent crude lost 50 cents, or 0.7 per cent, to $76.67 a barrel by 1:37 p.m. EST (1837 GMT), while U.S. West Texas Intermediate (WTI) crude shed 16 cents, or 0.2 per cent, to $71.85.
Canada’s TC Energy said it shut its 622,000 barrel-per-day Keystone pipeline, which is the primary line shipping heavy Canadian crude from Alberta to the U.S. Midwest and Gulf Coast, after a spill into a Kansas creek.
Oil prices rose after the company announced the closure, which occurred at about 8 p.m. CT Wednesday (0200 GMT Thursday), but market sentiment has since shifted.
“The concern about the Keystone situation is just not there anymore, and I think that will get back up and running in no time so it won’t be a material loss of crude...,” said John Kilduff, partner at Again Capital LLC in New York. “We’re back looking at the demand outlook.”
The energy markets are weighed down by fears of an economic slowdown, weakening fuel demand amid the prospect of more U.S. interest rate hikes, with the Federal Reserve widely expected to raise interest rates by 50 basis points next week.
While U.S. crude inventories fell last week, gasoline and distillate inventories surged, adding to concern about easing demand.
Limiting losses was an announcement by China on Wednesday detailing the most sweeping changes to its strict anti-COVID regime since the pandemic began, while at least 20 oil tankers faced delays in crossing to the Mediterranean from Russia’s Black Sea ports.
The 14-day relative strength index for Brent was below 30 on Thursday according to Eikon data, a level taken by technical analysts as indicating an asset is oversold and could be poised for a rebound.
Both Brent and U.S. crude hit 2022 lows on Wednesday, unwinding all the gains made after Russia’s invasion of Ukraine exacerbated the worst global energy supply crisis in decades and sent oil close to its all-time high of $147.
Western officials were in talks with Turkish counterparts to resolve the tanker queues, a British Treasury official said on Wednesday, after the G7 and European Union rolled out new restrictions aimed at Russian oil exports.
The queues suggest that “available supply from the Black Sea is already affected by the punitive measure,” said Tamas Varga of oil broker PVM.
“In a healthy economic climate, such a development would be the equivalent of firing the starting gun in the race back to $100.”