HOUSTON/LONDON (Reuters) - An explosion crippled the biggest pipeline supplying Canadian crude to U.S. Midwest refineries, shutting off more than one million barrels per day of imports to the world's biggest consumer.
The cause of the explosion on Wednesday that killed two employees was not immediately known.
By Erwin Seba and Randy Fabi
HOUSTON/LONDON (Reuters) - An explosion crippled the biggest pipeline supplying Canadian crude to U.S. Midwest refineries, shutting off more than one million barrels per day of imports to the world's biggest consumer.
The cause of the explosion on Wednesday that killed two employees was not immediately known.
U.S. crude oil prices <CLc1> on Thursday vaulted more than $4 a barrel to just over $95 in early trade.
!ADVERTISEMENT!It later eased to just over $93 a barrel after news the main fire was out and two of four connected lines had restarted, but analysts were still worried about the impact on supplies ahead of peak winter demand.
"The timing is pretty bad. We are coming to the strongest demand period for crude with the approach of the northern winter," said Mark Pervan of ANZ.
During the third quarter, the pipeline had carried around 1.5 million barrels per day of Canadian crude, or around 15 percent, of U.S. imports.
There was no word on when line 4, the biggest of the connected pipes, which ships nearly 700,000 barrels per day (bpd), would restart.
Line 3, with capacity of nearly 450,000 barrels per day (bpd) had been shut earlier to inspect a leak and was also still out of action.
"Two of the four pipelines have restarted," Larry Springer, a spokesman for Canadian operator Enbridge said on Thursday. "The fire in line three in the last hour has been extinguished, but there could be other fires around it."
He did not specify how much throughput had been restored.
STRATEGIC RESERVES
Analysts said there was a possibility Washington could release oil from its Strategic Petroleum Reserve (SPR) to make up for the shortfall and calm prices.
"An SPR release will be on the agenda if it turns out that line 4 is down for an extended period," said Paul Horsnell of Barclays Capital.
The explosion also increased the prospects for a supply increase from the Organization of the Petroleum Exporting Countries, which meets on December 5, analysts said.
Canada is the biggest supplier of foreign crude to the United States, with most of that oil delivered via the Enbridge system.
A lasting disruption to Lines 3 and 4 -- which together pump more than 1.1 million bpd of heavy and medium crude -- would put a strain on landlocked Midwest refiners, which have few immediate alternatives to the Canadian supplies.
That in turn could have a knock-on effect on stocks in the Cushing, Oklahoma, delivery point for oil futures traded on the New York Mercantile Exchange (NYMEX).
If Washington does release U.S. reserves, it would be the first time the president has authorized an emergency response since Hurricane Katrina caused massive disruption in 2005.
At the same time, the International Energy Agency (IEA), which represents 26 oil consuming nations, also ordered its members to make stocks available.
On Thursday, the head of the IEA said it was monitoring the situation, but the disruption was "not that substantial."
"If necessary, we will use our emergency measures," said Nobuo Tanaka, the IEA chief.
(Additional reporting by Bill Berkrot and Robert Campbell in New York, Luke Pachymuthu, Jiwon Chung and Nick Trevethan in Singapore, Muriel Boselli in Paris; Writing by Peg Mackey and Barbara Lewis)
