Plains All American Pipeline, the operator of the biggest pipeline carrying crude from the Permian to Cushing, Oklahoma, said it has extended the suspension of the pipeline due to problems with pressure. The announcement was made on Thursday, the day when the pipeline was to be restarted after a 10-day stoppage for a hydrotest.
The news immediately affected the spread before the front-month futures contract for West Texas Intermediate, and the second-month contract, Reuters noted, with traders largely expecting the planned outage to cause a shortage of 2 million barrels at Cushing for last week. As a result, the front-month WTI contract’s discount to the second-month futures narrowed by 10 cents to just US$0.33. Spot prices for WTI were also affected, with the discount to the futures contract diving to US$1 a barrel from US$0.15 in the same session, before the pipeline operator made its announcement.
The November contract for WTI closed at US$50.77 a barrel on Thursday, up 0.56 percent. The spot price for the benchmark at Cushing was US$50.72 on Tuesday, the latest available figure from the EIA.
The Permian pipeline is the only outgoing one in the most productive shale play in the U.S. It has a daily capacity of 450,000 barrels of crude, and if Plans All American Pipeline does not complete the work on it until next Thursday, storage facilities along and around it could fill up. This would push spot prices further down, according to traders.
Plains All American Pipeline operates over 18,000 miles of crude oil and natural gas liquids pipelines and gathering systems and has a total storage capacity of 30 million barrels.
Earlier this week, analysts cautioned that the company faces heightened risk to its revenues from its supply and logistics operations, which contribute a fifth of overall revenues. According to the experts, this business division gets its income from the difference in purchase and resell prices of crude oil and natural gas liquids. This makes it vulnerable to fluctuations in regional supply and demand for these commodities.