October 31, 2019 / 3:15 PM / 16 days ago

UPDATE 4-Marketlink oil line from Cushing cuts rates after Keystone leak -sources

(Adds analyst quotes, price reaction)

By Devika Krishna Kumar and Laila Kearney

NEW YORK, Oct 31 (Reuters) - TC Energy Corp’s Marketlink crude oil pipeline, a major artery out of the Cushing, Oklahoma, hub was operating at reduced rates, three sources said on Thursday, due to supply disruptions after the shutdown of the Keystone pipeline following a leak earlier this week.

A disruption in shipments on Marketlink, which has a capacity to flow 750,000 barrels per day (bpd) from Cushing to Nederland, Texas, is adding to a build at the delivery point for U.S. crude futures and pressuring crude grades in the region, traders said.

Marketlink is connected to the 590,000-bpd Keystone oil pipeline system, a key transporter of Canadian crude from northern Alberta to refineries in the U.S. Midwest.

About 9,120 barrels of oil were estimated spilled from Keystone near Edinburg, North Dakota, state officials said. The leak was discovered on Tuesday night and affected a wetland, they said.

On Wednesday, TC Energy said on its website that the Marketlink system was not affected by the Keystone outage, which was shut from Hardisty, Alberta to Cushing and to Wood River-Patoka, Illinois.

By Thursday, sources said the rates on the Marketlink were reduced, with one source saying the line was operating at about 190,000 bpd.

However, market intelligence firm Genscape said on Thursday afternoon that Marketlink shut from reduced rates at approximately 288,000 bpd earlier in the day.

TC Energy did not respond to requests for further comment.

The disruption on Marketlink pressured U.S. crude futures time spreads Clc1-Clc2, that typically reflect supply and demand in Cushing, traders and brokers said.

Coastal grades such as Magellan East Houston WTC-MRS and Mars Sour WTC-MRS could strengthen as the U.S. Gulf Coast market looks for replacement barrels, said Andy Lipow, president of Lipow Oil Associates in Houston.

The shutdown of the Keystone artery from Canada, meanwhile, weighed on Western Canada Select (WCS) heavy oil, which traded at $20 per barrel below U.S. crude futures, its biggest discount in 11 months, according to Net Energy Exchange.

“(This incident) underscores the structural issue plaguing the Canadian oil industry, whose fortunes are consistently one pipeline leak away from a materially wider WCS differential,” said Michael Tran, managing director of global energy strategy at RBC Capital Markets.

“While it is too soon to draw comparisons to last year’s historic pricing disconnect, the stranded barrels may raise similar fears if the outage proves longer than historical precedents,” Tran said.

TC Energy said in a statement it would focus on cleaning up the spill and preparing to make Keystone pipeline repairs.

“The initial guesses on a pipeline leak of this magnitude are 7-10 days (of repairs) which will reduce flows into Cushing by about 3-3.5 million barrels of heavy crude and some synthetic crude,” said Scott Shelton, a broker at ICAP in Durham. (Reporting by Devika Krishna Kumar and Laila Kearney in New York; additional reporting by Rod Nickel Editing by Marguerita Choy and David Gregorio)

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