Brent crude oil prices spiked to the highest level in 2½ years on Monday on news that a major pipeline in the U.K.'s North Sea will shut down for repairs.
The Forties pipeline system will close for several weeks while its operator, INEOS, repairs a crack in a pipe discovered last week. The pipeline carries about 450,000 barrels a day of Forties crude from offshore fields in the North Sea to a processing plant in Scotland.
Brent hit a session high of $64.85, its highest level since June 24, 2015. The benchmark had earlier jumped along with U.S. crude futures following an attempted terrorist attack in midtown Manhattan.
Brent crude intraday price
But the Forties outage sent Brent even higher, further widening the price difference between the benchmark and U.S. crude.
The market had expected INEOS to keep the pipeline running at reduced rates while it repaired the crack.
"Despite reducing the pressure the crack has extended, and as a consequence the Incident Management Team has now decided that a controlled shutdown of the pipeline is the safest way to proceed," INEOS said in a statement on Monday.
Forties crude is one of the several oil grades that sets the price of Brent. The Forties pipeline system opened in 1975 to transport crude from the U.K.'s first major offshore oil field.
Crude grades that set the price of Brent
Source: Energy Information Administration
Today, the Forties Pipeline System transports about 40 percent of the U.K.'s North Sea output from more than 80 fields.
"A shutdown of the Forties Pipeline System (FPS), even temporarily, will have wide-reaching implications the UK oil and gas industry," Fiona Legate, senior analyst for the North Sea at energy research firm Wood Mackenzie, said in a statement.
"Companies with fields utilising the FPS export route will suffer from reduced cash-flows during the shutdown period," she added.
Depending on the length of the outage, Brent crude prices could rise as high as $67 a barrel, according to John Kilduff, founding partner at energy hedge fund Again Capital.
"It's a lot of oil. It adds up," said Kilduff.
The outage comes after OPEC, Russia and nine other oil-producing nations agreed last month to extend their agreement to limit output. The production caps, in effect since January, have helped to reduce brimming stockpiles of crude oil and tighten a market that has long been oversupplied.
"It's a fine balance in the market right now, so [the Forties outage] would represent a decent-sized hit to supplies given what the Saudis and others are undertaking at the moment," Kilduff said.