Crude Falls on Alaska Pipeline Restart

Source: Dow Jones Newswires, Jerry DiColo  (1/18/11)

"Production restart dispels concerns about supply disruptions."


Crude futures traded lower Tuesday after the restart of a major pipeline supplying the U.S. West Coast, reducing concerns about supply disruptions for the world's largest oil consumer.

Light, sweet crude for February delivery recently traded $0.90, or 1%, lower at $90.64 a barrel on the New York Mercantile Exchange. Brent crude on the ICE futures exchange traded $0.76 lower at $96.67 a barrel.

On Monday, workers restarted oil flow through the 800-mile Trans Alaska Pipeline after crews installed a new section of pipe to bypass a damaged segment. A leak discovered earlier this month had forced producers on Alaska's North Slope to cut production by 95% during four days when the pipeline was completely shut.

"A significant amount of supply-risk premium was pumped into the WTI futures structure last week, and the market has been disgorging some of that premium so far this week as significant restart glitches have not developed," said Jim Ritterbusch, head of oil trading-advisory firm Ritterbusch and Associates, in a research note.

Oil traders had closely watched the situation in Alaska for any signs of a delayed restart. Still, the restart wasn't enough to push futures below the key $90 a barrel level, after the International Energy Agency said the world will need more crude from the Organization of Petroleum Exporting Countries amid faster-than-expected oil demand growth.

The IEA on Tuesday boosted its 2010 and 2011 demand estimates by 320,000 barrels a day from its December report. The agency now sees demand rising by 1.4 million barrels a day to 89.1 million barrels a day in 2011, due to stronger-than-expected consumption by the U.S. and other industrialized nations.

The IEA report sounded a note of caution that a prolonged stay for oil at $100 a barrel could exact a heavy toll on major energy-consuming economies.