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US oil settles above two-year high, up 1.6% at $58.95 per barrel

  • U.S. crude oil hit fresh two-year highs on Friday
  • The closure of the 590,000 barrels per day (bpd) Keystone pipeline following a spill last week has helped drive up U.S. crude
  • Markets have also been tightening due to an OPEC-led effort to withhold 1.8 million bpd of production
  • OPEC will meet on Nov. 30 to discuss its policy

U.S. oil prices jumped to a two-year high on Friday as North American markets tightened on the partial closure of the Keystone pipeline connecting Canadian oilfields with the United States.

U.S. light crude hit highs not seen since July 1, 2015, on Friday, settling up 1.6 percent at $58.95 per barrel.

Trading activity was expected to be low on Friday due to the U.S. Thanksgiving holiday.

"Right now the big focus is on the outage on the Keystone pipeline. That's taking longer to get back on line than we all thought," Again Capital founding partner John Kilduff said. "Part of the drawdown in Wednesday's inventory report was due to the outage. It could be out for a couple more weeks."

Kilduff added that Friday's move upward came after a Bloomberg report saying OPEC and Russia have outlined the framework for a deal. However, details remain unclear and the report says there is no final agreement yet.

PVM Oil Associates strategist Tamas Varga said the oil spill that shut the Keystone pipeline was supporting U.S. crude, flipping prices into backwardation, when front-month prices rise above those for future months, indicating an undersupplied market.

"January is now 4 cents more expensive than February, and I think we have not seen that for three years," he said.

The pipeline spill on Nov. 16 reduced the usual 590,000 barrel-per-day flow to U.S. refineries, driving down inventories at the storage hub of Cushing, Oklahoma, traders said.

Markets have also tightened globally due to output cuts since January by the Organization of the Petroleum Exporting Countries, Russia, and several other producers.

OPEC meets on Nov. 30 and is expected to extend to the pact on cutting output beyond its March expiry, although Russia has sent mixed signals about its support for an extension.

"With the majority of OPEC members endorsing an extension, Russian support is the key risk," Jon Rigby, head of oil research at UBS, wrote in a note.

President Vladimir Putin indicated in October that Russia backed extending the deal to the end of 2018, but comments by officials and in Russian media have created uncertainty since then, he said.

Rising U.S. oil production has also curbed crude price gains. U.S. output jumped by 15 percent since mid-2016 to a record 9.66 million bpd, thanks largely to shale drilling.

– CNBC's Patti Domm contributed to this report.