The benchmark North American oil price hit its highest price in 2½ years on Wednesday as lower production from Canadian oilsands coupled with reduced inventories in the U.S. to push down supply.
The price of West Texas Intermediate touched $58.05 US a barrel a little before 6 a.m. ET, up more than a dollar from Tuesday's close. The U.S. crude price is now up by about 35 per cent since a low in June.
Two factors in the recent gain were warnings from two major oilsands companies that they would pump less oil this month and next. Royal Dutch Shell told its customers that output at its 255,000-barrel-per-day upgrader in Scotford, Alta., would be reduced next month, and Syncrude said it would cut volumes from the 350,000-barrel-per-day plant in northern Alberta by about five per cent, Reuters reported.
Last week, the Keystone pipeline that carries 590,000 barrels per day of crude from Alberta's oilsands to markets in the United States, was shut down after 5,000 barrels of oil spilled in South Dakota. That prompted a shutdown of the pipeline while the mess could be cleaned up, and that's also pushing up the oil price.
On Tuesday, the American Petroleum Institute reported that oil inventories dropped by 6.4 million barrels last week, far more than what analysts were expecting.
Oil inventories tend to decline through the summer months — the busiest driving season — but this year's decline is stretching even later than usual.
"There is a shortage of crude oil into the United States. Hence the rally in the prices," VM Oil Associates strategist Tamas Varga told Reuters.
While the API figure is closely watched, it isn't the official government number, which is set to come out on Wednesday afternoon.
"If we see the U.S. Energy Information Administration ... confirming the big draw in crude oil stocks reported by the API last night, I think we will see the market going higher," Varga said.