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US crude rises 1.1%, settling at $57.99, after Forties Pipeline shutdown, New York blast

Key Points
  • The Forties crude oil pipeline shut down following a leak.
  • Prices edge higher after an attempted terrorist attack in New York City.
  • The U.S. rig count rose to 751, the highest since September, while American oil production is heading toward 10 million barrels per day.
Lucy Nicholson | Reuters

Oil prices rose Monday, reversing earlier declines, after a North Sea pipeline shut for repairs and investors focused on commodities following an explosion in New York.

U.S. West Texas Intermediate (WTI) crude futures ended Monday's session up 63 cents, or nearly 1.1 percent, to $57.99 a barrel.

Brent crude futures, the international benchmark for oil prices, touched a 2½-year high of $64.93, before easing to trade up $1.22, or 1.9 percent, at $64.61 a barrel at 2:26 p.m. ET (1926 GMT) .

The difference between the two grades was the largest since late October, as Brent rallied after the shutdown of the pipeline that carries the largest grade of North Sea crude oil.

The pipeline, which can carry 450,000 barrels per day of Forties crude from the North Sea to the Kinneil processing terminal in Scotland, has been operating at reduced capacity for about four days before the shutdown.

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"It is a supply concern not only because the pipeline transports a significant portion of North Sea crude oil output, but also because it may take weeks before the issue is resolved," said Abhishek Kumar, Senior Energy Analyst at Interfax Energys Global Gas Analytics in London.

The market had expected the pipeline to return to service quickly and was surprised by the extended shutdown, said John Kilduff, partner at Again Capital LLC in New York.

"It's a significant amount of crude oil in a market that has been the tightest for crude oil," Kilduff said.

Earlier in the session, both benchmarks popped higher after an explosion on Monday rocked New York's Port Authority Bus Terminal, one of the city's busiest commuter hubs.

Investors tend to head for hard-asset commodity markets like gold and silver during high-risk events, and oil can also attract investment, Kilduff said.

OPEC has gotten a 'lead' on the oil market with output cuts

Brent and WTI have gained well over a third from 2017 lows, drawing support from a cut in production by the Organization of the Petroleum Exporting Countries and a group of non-OPEC producers, including Russia, which has been in place since the start of the year.

During the weekend, Kuwait's oil minister suggested that an exit from the supply-cut agreement would be studied before June.

The United Arab Emirates' energy minister said on Monday that OPEC plans to announce in June an exit strategy from the cuts, though he added it did not mean the pact would end by then.

Gains from the cuts could also be undermined by rising output from the United States, which is not participating in the deal to withhold production.

The number of rigs drilling for new oil output in the United States rose by two in the week to Dec. 8, to 751, the highest since September, energy services company Baker Hughes said on Friday.

"The largest concern for investors currently remains the rise in the U.S. rig count," said Shane Chanel, equities and derivatives adviser at ASR Wealth Advisers.

A higher rig count points to a further rise in U.S. crude production <C-OUT-T-EIA>, which is already up more than 15 percent since mid-2016 at 9.71 million barrels per day.

That's the highest since the early 1970s, and close to the output levels of top producers Russia and Saudi Arabia.

— CNBC's Tom DiChristopher contributed to this report.