The US Department of State has published its Supplemental Environmental Impact Statement (SIES) on the Keystone XL pipeline project, which aims to deliver Canadian heavy crude south, across the border, with a capacity of up to 830kb/d. The application to construct the pipeline was first submitted in 2008 and envisioned crude delivery to the US Gulf Coast via Cushing, Oklahoma, the pricing point of WTI. It has since been split into two projects, with the southern leg, the Gulf Coast pipeline from Cushing to the Gulf Coast, already operational. The Keystone XL pipeline, which needs to be deemed to be in the national interest and receive a Presidential Permit, has proved highly controversial with environmentalists. President Obama had already made it clear that the pipeline’s impact on climate change would be critical as to whether the project is allowed to proceed. The Department of State’s analysis concludes that the pipeline would result in the (joint) lowest carbon emissions of the scenarios under consideration. Government agencies, including the Environmental Protection Agency, now have 90 days to comment on the study before the Department of State makes its final recommendation to the President.
Net managed money futures and options positions on NYMEX in WTI, regarded as the most directionally driven speculative category, jumped 12.9% or 29,779 positions WoW, for the largest WoW increase since early July 2013. That took net speculative positions in WTI to 260,282 positions. Over the same period, WTI closed up USD 2.42/bbl (+2.6%) WoW to USD 97.41/bbl.
On the other side of the Atlantic, net managed money futures and options positions on the ICE in Brent rose 8.8%, or by 7,956 positions to 98,271 positions, in the week ended 28 January. Speculative net longs had recently dropped to a 14-month low and are almost 60% below the peak in August. Total Open Interest for futures and options rose 1.8% WoW. Over the same period, Brent rose USD 0.68/bbl WoW to USD 107.41/bbl, taking the WTI discount to Brent to USD 10.00/bbl. Since then, Brent has dropped USD 1/bbl, while WTI has remained flat, leaving the discount to Brent below USD 9/bbl for the first time since mid-October 2013.
Considerable market uncertainty remains over the supply/demand balance in 2014 given growing tight oil production from North America (though that is off to a slower-than-expected start; see Morning Comment of 30 January), an apparent slowdown in emerging market growth, and the ability of OPEC to manage output, if necessary, to balance the market. Initial estimates for January put OPEC crude production at 29.9mmb/d, the lowest since June 2011, and not much higher than the ‘call on OPEC crude’ for 2014.