Keystone pipeline leak: A look at the storage situation and the factors affecting prices

Emergency crews work to clean up after a leak at the Keystone pipeline, in Washington County, Kan., on Dec. 9.DRONE BASE/Reuters

Six days after TC Energy’s TRP-T Keystone pipeline shut following a 14,000-barrel spill into a creek in Kansas, traders are questioning whether there is enough oil in storage in key areas if the pipeline remains closed for a number of weeks.

Here is the latest data on storage inventories, and other factors affecting cash prices in Canada and the United States:

Western Canadian inventories

As of the week ending Dec. 2, or the week before the spill, Canadian inventories were just below 29 million barrels, according to energy consultancy Wood Mackenzie, with about 16 million barrels of spare capacity available.

On Tuesday, the latest data for the week ending Dec. 9 showed inventories rose 1.4 million barrels to around 30.4 million, according to a trader. Wood Mackenzie, which sends its inventory data to clients a day or two ahead of making it widely available, declined to confirm those numbers.

Following a previous Keystone leak in 2019, which triggered a 13-day shutdown, inventories climbed by 13.6 million barrels over five weeks. The spare capacity on hand this time suggests Canadian storage hubs have ample space for any barrels stranded in Alberta.

Canadian crude prices remain broadly steady. The discount on Western Canada Select (WCS) heavy crude for delivery in December fell to $33.50 a barrel below the U.S. crude benchmark the day the leak was reported, before recovering. WCS for January delivery last traded at a discount of $28.20 a barrel, only slightly wider than before the spill.

“It looks like nothing has really changed in Canada, but Canada still has enough storage space,” the trader said.

U.S. Gulf inventories

Before the Dec. 7 spill, crude oil stocks at the Gulf Coast were at their lowest in more than eight months, at about 226.5 million barrels, according to the U.S. Energy Information Administration’s data for the week to Dec. 2.

Weekly Gulf Coast gross input into refineries stood at 9.4 million barrels per day.

However, analysts were not worried about inventory.

“The Gulf Coast is reasonably well supplied. I don’t think that there is any sort of significant panic in terms of lack of heavy (crude) in the Gulf Coast, particularly given that we could pull more Colombian as well Latin American barrels into the Gulf,” said Michael Tran, an analyst at RBC Capital Markets.

Prices of U.S. sour crude oil grades strengthened slightly on Monday, as refiners sought alternatives to Canadian barrels.

Cushing, Oklahoma storage hub

Inventories at the key U.S. crude storage hub in Cushing, Oklahoma, totalled 28.3 million, according to Wood Mackenzie data for the week ending Dec. 9.

That puts inventories at about a third of capacity and less than 4.5 million barrels above the operational floor, based on operational capacity and historical low utilization.

West Texas Intermediate crude futures have jumped over 6% this week as traders are starting to grow concerned that an ongoing shutdown will cause a drop in inventories at Cushing, also the delivery point for the benchmark.

Weekly industry inventory figures from the American Petroleum Institute are scheduled to be released at 4:30 p.m. EST (2130 GMT) on Tuesday, followed by U.S. Energy Department data on Wednesday.

Numerous refineries in the U.S. Midwest usually pull barrels from the storage hub, but cash crude prices at Cushing has not moved much because traders expect part of Keystone to reopen soon.

The leak occurred just south of a key junction in Steele City, Nebraska, where Keystone splits into two legs. The leg that flows to Patoka, Illinois, could be reopened as it was not affected, said Dylan White, an analyst at Wood Mackenzie.

So far, TC has not commented on a partial restart of the Patoka leg.

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