Oil edges up on UK pipeline outage; U.S. supply limits gains

By Julia Simon

NEW YORK (Reuters) - Oil edged up toward $64 a barrel on Tuesday, helped by a North Sea pipeline outage, OPEC-led supply cuts and expectations that U.S. crude inventories had fallen for a fifth week.

But rising U.S. output has put a lid on gains. Shale production will rise to a record in January, according to a government forecast published on Monday, as higher prices encourage increased drilling.

Brent crude settled up 39 cents or 0.6 percent to $63.80 a barrel. U.S. crude settled up 30 cents or 0.5 percent to $56.46.

The shutdown of the North Sea's Forties pipeline since last week has supported Brent, as Forties is the largest of the five crude grades underpinning the benchmark. On Dec. 12, Brent reached $65.83, its highest since mid-2015.

 

"We got the news that the fabricated piece for the Forties pipeline is on its way to the site, but the outage is still registering in the market," said John Kilduff, partner at Again Capital LLC in New York. "While the market is dealing with it, we could see this go on into the new year."

Ineos, the operator of the Forties pipeline, said on Tuesday it was moving forward with a preferred repair option and the timeframe for the fix remained two to four weeks starting from Dec. 11, the date of the shutdown.

Oil ticked up after reports that a missile was fired at the Saudi Arabian capital Riyadh from Yemen, but Saudi Arabia said it intercepted the missile and no casualties were reported.

Prices have also drawn support from a deal by the Organization of the Petroleum Exporting Countries and non-member producers including Russia to cut crude output to curb a global glut.

OPEC and its allies have extended the agreement until the end of 2018 and Russia's Rosneft said on Monday it could be maintained beyond next year.

The cuts have trimmed global oil inventories, and the latest weekly supply reports are expected to show a further reduction.

U.S. crude oil inventories were forecast to have fallen for a fifth straight week along with a probable fall in distillate stocks last week, a preliminary Reuters poll showed on Monday.

"We're tighter than we've been in a while when it comes to global inventories, and particularly in the Brent market," said Again Capital's Kilduff.

The first of these reports, from the American Petroleum Institute, is due at 4:30 p.m. EST on Tuesday. [EIA/S]

The U.S. Energy Department's Energy Information Administration report is due at 10:30 a.m. EST on Wednesday.

Rising U.S. production is countering lower supply elsewhere. U.S. shale output in January is forecast to increase by 94,000 barrels per day to 6.41 million bpd, according to the EIA's monthly drilling productivity report published Monday.

(Additional reporting by Alex Lawler and Henning Gloystein; editing by David Gregorio and Diane Craft)