Brent oil prices jumped by one percent on Tuesday to their highest since mid-2015, after the shutdown of the Forties North Sea pipeline knocked out significant supply from a market already tightening due to OPEC-led production cuts.
Brent crude futures LCOc1, the international benchmark for oil prices, were at $65.32 a barrel at 07:48 GMT, up 63 cents, or one percent, from their last close. The contract hit a high of $65.70 a barrel earlier in the day.
That marks the first time Brent has risen above $65 since June 2015.
US West Texas Intermediate (WTI) crude futures CLc1 were at $58.38 a barrel, up 39 cents, or 0.7 percent, from their last settlement.
“Brent crude raced higher … as news broke that the North Sea’s Forties Pipeline system would have to be shut down for a ‘number of weeks’ after a hairline crack was found in it,” said Jeffrey Halley, senior market analyst at futures brokerage OANDA in Singapore. “The pipeline … is a significant component underpinning the Brent benchmark.”
Britain’s Forties oil pipeline, the country’s largest at a capacity of 450,000 barrels per day (bpd), shut down on Monday after cracks were revealed.
“The market reaction shows that in a tight market, any supply issue will quickly be reflected in higher prices,” said ANZ bank.
Analysts said there was also oil price support from the consumer side.
“Demand growth across the commodity complex is extremely robust. And inventories across the complex have been declining sharply,” US bank Goldman Sachs said in a note to clients.
The jump in Brent prices widened its premium to WTI prices to as much as over $7 a barrel CL-LCO1=R, the highest premium since May 2015 and up from around $5 last week, making US oil exports more attractive.
Cheaper WTI is also a result of rising U.S. oil production C-OUT-T-EIA, which has jumped by more than 15 percent since mid-2016 to 9.71 million bpd, levels not seen since the early 1970s.
US production is now also not far off that of top producers Russia and Saudi Arabia.
The rising US output threatens to undermine efforts led by the Organization of the Petroleum Exporting Countries (OPEC) and a group of non-OPEC producers, most importantly Russia, to support prices by withholding supplies.
OPEC and its allies started withholding supplies last January and currently plan to continue doing so throughout 2018.