Keystone pipeline shut down after spill in Kansas

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Keystone pipeline shut down after spill in Kansas

People familiar with the matter said that the company shut the line after a spill into a Kansas creek forced TC Energy Corp. to declare force majeure on its Keystone oil pipeline system.

The massive crude pipeline, which can carry more than 600,000 barrels of oil from Canada to US markets, was shut down Wednesday night.

West Texas Intermediate oil futures briefly jumped above $75 per barrel. Physical crude prices on the Gulf Coast surged on expectations of tighter supplies after the outage.

The availability of oil in Cushing, Oklahoma, the delivery point for benchmark US futures, would be tightened if a prolonged disruption occurred. Inventories at the hub are already at their lowest since July and are seasonally lows after refineries ramped up processing in response to strong gasoline demand. The record fuel prices have become a major domestic political issue at the end of the year.

The Keystone system starts in western Canada and runs to Nebraska, where it splits. One branch leads east to Illinois and the other runs south through Oklahoma and on to America's refining hub on the Texas Gulf Coast.

The spill follows several other leaks that hit Keystone in the past several years. The system shut down in October 2019 after it spilled thousands of barrels of oil in North Dakota.

Since it affects the waterway, it can complicate cleanup efforts, which is why traders say they expect the latest outage to last upwards of a week. Calgary-based TC didn't immediately provide an estimate of how much crude leaked or a timeline for a restart.

The Nebraska Department of Environment and Energy confirmed the incident occurred in Kansas. The Pipeline and Hazardous Materials Safety Administration, a federal regulator, said it sent personnel to the site of an oil leak near Washington, Kansas on Wednesday.

The agency said that the investigation of the leak by the PHMSA is ongoing.

The US crude market could get very tight with the strength of refinery runs in the Midwest since August. Before paring gains, the WTI went up as much as 4.8%. It traded at $72.44 at 12: 06 pm. The nearest time spread for the benchmark surged as much as 53 cents into a bullish backward structure, a phenomenon that typically shows there is concern about supply.

Physical markets in the US Gulf Coast are signaling tightness. In response to the outage, Gulf Coast sour crude prices have gone up. According to Link Data Services, the Mars Blend, a mid sour benchmark, was strengthened by about 30 cents.

In Canada, heavy crudes such as Western Canadian Select WCS declined by $4.70 a barrel, according to Bloomberg, as the outage threatens to back up more Canadian crude in the Hardisty area.

With help from Alex Longley, Robert Tuttle, Ari Natter and Sheela Tobben.

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