NEWS

Oil prices fell on Tuesday, retreating after an early surge to a 2½-year high when the United Kingdom’s biggest North Sea oil pipeline was shut, crimping the flow of global benchmark Brent crude.

The Forties pipeline, which was scheduled to pump 406,000 barrels per day (bpd) in December, was shut on Monday after cracks were found in what traders believe is the first unplanned outage for some years.That pushed Brent prices higher on Monday, and the rally continued into Tuesday morning before prices retreated during U.S. trading hours. Brent Crude, the global benchmark, was down $1.34, or 2.1 percent, at $63.35 at 2:29 p.m. ET, giving up all of Monday’s gains. The contract earlier broke above $65 for the first time since June 2015, trading as high as $65.83.

U.S. Intermediate Crude ended Tuesday’s session down 85 cents, or 1.5 percent, at $57.14. It fell from an intraday peak $58.56, which was about 50 cents shy of a 2½-year high.

The sharp run-up in oil prices on Monday following the closure is giving traders an opportunity to profit by selling at elevated levels, said John Kilduff, founding partner at energy hedge fund Again Capital. “I think there was a bit of an overreaction to this pipeline issue in the North Sea,” he told CNBC. Forties is important for the global oil market because the crude it carries normally sets the price of dated Brent, a benchmark used to price physical crude around the world and which underpins Brent futures. The WTI-Brent spread widened out to as much as $7, the highest in more than two years, then narrowed to about $6.50. WTI has lagged Brent, and the discount has helped boost U.S. exports. “The rise in Brent is going to drive WTI up as opposed to WTI dragging Brent down,” said Phil Flynn, analyst at Price Futures Group in Chicago.

Analysts and traders said the outage was likely to cause significant delays in the loading of Forties crude cargoes. “There are (still) going to be loads,” a trade source said, adding that the number was hard to estimate until the pipeline’s restart date is known.

U.S. crude stockpiles are expected to fall by 3.8 million barrels, a fourth straight week of decline, according to analysts polled ahead of reports from industry group American Petroleum Institute and the government’s Energy Information Administration. The API is scheduled to release its data for last week at 4:30 p.m. ET on Tuesday. The EIA follows on Wednesday.

Oil supply cuts led by the Organization of the Petroleum Exporting Countries this year have helped to whittle away an excess of inventories which built up following a supply glut that began to emerge in late 2014. But U.S. crude has lagged the rally in Brent in part because of rising U.S. oil production.