Oil Prices May Increase as Enbridge Shuts Illinois Pipe

Enbridge Inc. plans to resume crude deliveries this week on an Illinois pipeline that shut over the weekend, allowing supply to reach Chicago-area refineries run by BP Plc, Exxon Mobil Corp. and Citgo Petroleum Corp.

Line 14 may start operating late on March 7 and Line 64 the following day, Lorraine Little, a spokeswoman in Superior, Wisconsin, for Calgary-based Enbridge, said in an e-mail yesterday. Lines upstream of Superior will be slowed or shutdown to manage tank levels, she said.

Enbridge halted crude deliveries on line 14/64 after two vehicles collided, starting a fire at the pumping station near New Lenox, Illinois, 36 miles (58 kilometers) southwest of Chicago. Two people were killed and several others injured in the crash.

“The pipeline closure could pressure local prices in the North American market, but I can’t see any price implications for global markets,” said Carsten Fritsch, an analyst at Commerzbank AG in Frankfurt.

West Texas Intermediate crude oil for April delivery rose 2 cents to $106.72 a barrel on the New York Mercantile Exchange. Jason Schenker, the president of Prestige Economics in Austin, Texas, said the Enbridge incident may affect regional U.S. prices.

Midwest Refineries

BP’s 420,000-barrel-a-day refinery in Whiting, Indiana, isn’t affected, said a person with knowledge of the plant’s operations. Exxon Mobil Corp. said its 238,000-barrel-a-day Joliet refinery in Illinois receives oil from the Enbridge pipeline system.

“At this point contractual obligations are being met. As is our practice we do not comment on day-to-day operations,” Rachael Moore, a spokeswoman for the Irving, Texas-based company, said in an e-mail.

Fernando Garay, a Citgo spokesman, didn’t immediately reply to an e-mail asking if the company’s 170,500 barrels of crude a day Lemont, Illinois, refinery was affected. Shane Pochard, a spokesman for Marathon Petroleum Corp., which operates a 215,000-barrel-a-day plant in Robinson, Illinois, declined to comment.

Illinois had 973,000 barrels a day of refining capacity in January 2011, 5.5 percent of the U.S. total, according to the Energy Department.

The 14/64 pipe can ship 320,000 barrels a day from Superior, Wisconsin, to Mokena, Illinois, while 6A can carry 670,000 barrels a day between Superior and Griffith, Indiana, according to the Enbridge website. Both pipelines carry light, heavy or synthetic crude to refineries in the Chicago area.

Reduced Rates

Enbridge also slowed the movement of oil on its 2B and 3 lines running from Canada into the U.S. to better manage terminal inflow after the Illinois incident, the company said. The 2B line can carry 410,000 barrels a day, while the 3 pipeline can carry 390,000 barrels daily.

“This going to put pressure on producers” by reducing their ability to move oil to buyers, said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “All of the outbound pipeline capacity out of North Dakota and Canada was already running at capacity,” he said. More pared pipeline capacity is the last thing producers need, he said.

About 20,000 gallons of oil from the 24-inch pipeline were released, according to a March 3 filing with the Illinois Emergency Management Agency by the New Lenox fire district. Another filing made with the agency from Enbridge said the release was 2,500 gallons.

Line 5

Enbridge’s 491,200-barrel-a-day Line 5, which carries oil from Wisconsin to Michigan and Ontario, has been operating at a reduced rate since Feb. 17. That’s when flow resumed after being shut for two days when a leak was discovered near Sterling, Michigan. There has been no change in the operations of the pipeline, Little said yesterday.

Crude stockpiles in the Midwest, an area classified by the Energy Department as PADD 2, increased 1.8 percent to 97 million barrels in the week ended Feb. 24, the highest level since September, the department said in a Feb. 29 report.

Canadian and North Dakotan oil grades will trade at an increasing discount to WTI crude, the U.S. benchmark grade traded in New York, Lipow said.

Syncrude oil’s discount to WTI widened 50 cents to $5.50 a barrel at 4:08 p.m. in New York, according to data compiled by Bloomberg. Western Canada Select’s discount widened 50 cents to $32.50 a barrel below WTI.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE