U.S. West Texas Intermediate crude oil futures hit a two-year high last week and international-benchmark Brent crude oil hovered near a multi-year high as investors reacted to the partial closure of the Keystone pipeline connecting Canadian oilfields with the United States. The news was bullish because it contributed to the tightening of U.S. supplies.

January WTI crude oil settled at $58.95, up $2.24 or +3.95% and February Brent crude oil finished the week at $63.47, up $0.92 or +1.47%.

The oil spill that shutdown the Keystone pipeline helped flip prices into backwardation. This is a condition when front-month prices rise above those for future months, indicating an undersupplied market. January WTI crude oil is now trading 4 cents above the February futures contract, a condition not seen in about 3 years.

The Keystone spill on November 16 reduced the usual 590,000 barrel-per-day flow to U.S. refineries, driving down inventories at the main futures storage hub at Cushing, Oklahoma.

In other news, according to the U.S. Energy Information Administration, U.S. crude inventories fell 1.9 million barrels in the week to November 17 to 457.14 million barrels.

U.S. energy companies this week added oil rigs, with the monthly rig count rising for the first time since July. Drillers added nine oil rigs in the week to November 22, bringing the total count up to 747, according to General Electric Co.’s Baker Hughes energy services firm.

Forecast

This should be an active week for crude oil traders. The key market driving events will be the Keystone Pipeline problem and the OPEC meeting on November 30.

WTI crude oil futures should continue to remain underpinned and prices could continue to rise the longer it takes to bring the Keystone pipeline back on line. Some traders are estimating the pipeline may be out for another two weeks.

On November 30, OPEC meets in Vienna, Austria. It is expected to extend the deal to cut production from March 2018 to December 2018.

According to Bloomberg, OPEC and Russia have outlined the framework for an extension. However, at this time the details remain unclear and the news report says there is no final agreement yet.

The majority of OPEC members are endorsing an extension, however, Russian support is the key risk.

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

As far as the price action is concerned, the pipeline shutdown is bullish news. The announcement of an extension can cause a volatile two-sided trade because it has already been priced into the market. Anything less than a 9-month extension should be bearish. The absence of Russia from the extension will also be bearish news. If the OPEC-led group decides to extend and expand the production cuts then this news will be extremely bullish.