U.S. oil prices surged Wednesday, closing at a five-month high of more than $100 a barrel after a Canadian energy company ended a standoff by agreeing to shift the route of a planned oil pipeline out of an environmentally sensitive area of Nebraska.
The agreement has two companies, Enbridge Inc. and TransCanada Corp., racing forward with new pipeline plans in a fierce battle to unclog a yearlong U.S. oil bottleneck.
A glut of oil that has built up in the Midwest has created what has been described as an unprecedented distortion in crude markets, with the global Brent crude benchmark trading for about $9 a barrel more that domestic West Texas Intermediate. The gap, which had been more than $12, narrowed Wednesday as U.S. crude rose about $3 to $102.59, while Brent fell 51 cents to $111.67.
Several developments helped send domestic oil prices higher Wednesday, but they add up to energy companies racing to ship oil in the Midwest to Gulf Coast refineries, where it can fetch a premium.
The Nebraska legislature Wednesday voted unanimously to advance a proposed law that would reroute the controversial TransCanada Keystone XL pipeline to avoid the sensitive Sandhills and Ogallala aquifer.
The news followed TransCanada's agreement Monday to find a new route, something it previously had said would be impossible.
Gas prices rose about 4 cents to $2.63 a gallon on futures markets Wednesday although gas prices fell sharply last month, more than offsetting other price increases, according to the latest monthly inflation figures. Crude oil prices peaked in April at nearly $114 a barrel on turmoil in the Middle East before falling to as low as $76 last month. Since then crude has been rising sharply.
Our friends at The Motley Fool note that oil prices have surged by one-third over the past month and suggest the commodity could be on its way to $200 a barrel, as some experts once predicted.
David Lee Smith writes:
A number of game changers can -- and probably will -- occur as we move into the impending new year. I'm wagering that a host of the potentially catastrophic events could involve Iraq and its neighbor to the east, Iran. The result, almost certainly, would be a steep escalation of crude levies.
Smith sees four factors leading to a potential run-up in oil prices next year:
- The complete withdrawal of U.S. troops from Iraq, opening the way for a closer alliance with Iran.
- ExxonMobil's move into the Kurdistan region, which has riled the Iraqi government.
- Iran's effort to develop nuclear weapons.
- The potential for renewed civil war in Iraq.
The Middle East and North Africa -- and especially the all-important Iraq-Iran-Saudi Arabia region -- remain very much a tinderbox, with the potential to drive crude prices to stratospheric levels
