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Crude oil prices rise after Keystone southern portion announcement

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Oilfield Technology,

Crude oil prices ended with their largest gain in two weeks on Wednesday 2nd October, following news that TransCanada Corp.'s Keystone XL Gulf Coast pipeline would start up by the end of this year.

TransCanada Corp. said it expects to complete work on the southern portion of its Keystone pipeline expansion by the end of October.

Keystone news prompts stock rise

The news narrowed the premium for Brent oil futures over US oil futures, known as West Texas Intermediate (WTI), to its smallest level in a week, briefly dropping below US$ 5/bbl.

The rise happened over speculation that the pipeline link will help reduce stockpiles at Cushing, OKlanhoma, the delivery point for the WTI contract.

The southern portion of TransCanada's 700 000 bpd crude pipeline is 95% complete and the company is focused on starting the line that will move crude from Cushing to the Gulf Coast refining centre. 

Imminent filling of the new pipeline segment

WTI crude for November delivery rose US$ 2.06, or 2%, to US$ 104.10/bbl on the New York Mercantile Exchange. It was the highest settlement since 20th September and the biggest gain since 18th September. The contract dropped to US$ 102.04 yesterday, the lowest close since 3rd July. The volume of all futures traded was 34% above the 100 day average.

The middle section of Keystone is already finished and the southern portion should be completed in the next week, according to sources. The 195 mile (314 km) link originating at Cushing still needs to be completed.

Linefill on the new pipeline segment is expected to begin shortly after the commissioning at the end of this month.

Stockpiles drop at Cushing hub

Cushing supplies slipped 59 000 bbls to 32.8 million last week, according to the Energy Information Administration. Stockpiles at the hub have dropped 34% over the past 13 weeks as improved pipeline networks and shipments by rail eased a North American supply glut created by rising oil production from shale formations.

Traders who were holding long Brent oil positions and short positions on WTI were forced to buy the US oil contract to cover bets once prices began to rise, which drove a further price spike, said Gene McGillian, analyst at Tradition Energy in Stamford, Connecticut.

"Some people got caught wrong-footed on the pipeline announcement and got held to the fire," he said.

Edited from various sources by Elizabeth Corner

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