Keystone pipeline is shut down after oil spills into creek in Kansas

TC Energy announced Thursday that it has closed the Keystone oil pipeline system after an oil spill into a Kansas creek, according to people familiar with the matter.

The massive crude pipeline, which can carry more than 600,000 barrels of oil from Canada to U.S. markets, was shuttered Wednesday night.

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

A prolonged disruption would significantly tighten the availability of oil in Cushing, Oklahoma, the delivery point for benchmark U.S. futures.

Inventories at the hub are already at their lowest since July – and at multiyear lows seasonally – after refineries ramped up processing in response to strong gasoline demand.

The outage, initially blamed on a “force majeure” which generally means a force of nature, comes at the end of a year in which record fuel prices have become a major domestic political issue.

The Keystone system begins in western Canada and runs to Nebraska, where it splits.

One branch heads east to Illinois and the other runs south through Oklahoma and onward to America’s refining hub on the Texas Gulf Coast.

The spill follows several other leaks to hit Keystone in the past several years.

The system was shut in October 2019 after it spilled thousands of barrels of oil in North Dakota.

Traders said they expect the latest outage to last upward of a week since it affects a waterway, which can potentially complicate cleanup efforts.

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 deployed personnel to the site of an oil leak near Washington, Kansas, on Wednesday.

“PHMSA’s investigation of the cause of the leak is ongoing,” the agency said.

With refinery runs in the Midwest at their strongest since August, the U.S. crude market could now get very tight.

WTI rose as much as 4.8% before paring gains. It traded at $72.44 at 12:06 p.m. in New York.

The nearest time spread for the benchmark surged as much as 53 cents into a bullish backwardation structure, a phenomenon that typically shows there’s concern about supply.

Physical markets in the U.S. Gulf Coast are signaling tightness, too.

Gulf Coast sour crude prices have risen in response to the outage.

Mars Blend, a medium sour benchmark, strengthened by about 30 cents, according to Link Data Services.

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