Major Pipeline Explosion Reverses Crude Oil Losses

Crude oil prices took traders on a wild ride over the last two days, posting their largest decline since early January Tuesday and Wednesday, only to see a rapid reversal Thursday, after a Wednesday evening explosion shut down Canadian pipelines that typically supply 15% of total U.S. oil shipments. Crude fell 7.2% since Tuesday, its biggest two-day drop since January 3-4 when prices slid 8.9% on unseasonably warm weather, after a U.S. government report that showed stockpiles declined less than expected. Meanwhile, refineries operated at 89.4% capacity, their highest level in over two months, indicating ample ongoing supply. The decline also had a technical basis: "We started moving lower a few days ago when a lot of people were surprised we didn't break through $100. We are now heading for the $90 area," one New York-based broker said. But sub-$90 oil wasn't in the cards after an explosion ripped through the largest U.S.-Canadian oil pipeline, shutting it and three other lines down for repair and further inspection. The tragedy claimed the lives of two Enbridge Inc. employees. A fire was still reported burning at the Clearbrook terminal in Minnesota where the pipelines enter the U.S.; it is not yet clear when they will be cleared for use again. An Enbridge spokesman said, "One of the set of four pipelines will require repairs and regulator inspections, while the largest is not likely to start up any time soon." The pipelines supply roughly 1.5 million bbl/day, roughly 15% of U.S. total crude consumption. After January 2008 crude closed at $90.62 in composite NYMEX trading Wednesday, prices were up 2.7% to $93.10 in Thursday morning trading on news of the explosion (chart courtesy of wtrg.com).

Sources: Bloomberg I, II, CNNMoney.com, Reuters
Commentary: Crude Falls on Surprising Increase in Inventories • IEA Cuts Oil Demand Outlook • Crude Retreats After Better-Than-Expected Inventory Data
Stocks/ETFs to watch: ENB, USO, DBO, OIL

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