Oil prices rebounded Monday on a potential decline in crude shipped from Canada, the U.S.'s biggest source of foreign oil.
Light, sweet crude for August delivery settled higher by $1.49, or 1.6%, at $95.18 a barrel on the New York Mercantile Exchange. It was the biggest dollar rise in prices since May 3. ICE North Sea Brent crude oil for August delivery settled 25 cents higher at $101.16 a barrel.
The gap between Nymex and Brent crude narrowed to $5.98 a barrel, the closest the prices have been since January 2011.
The gains in Nymex crude prices came after Canadian pipeline operator Enbridge Inc. (ENB, ENB.T) said it had shut down and isolated a pipeline north of Cheecham, Alberta, after detecting a spill of some 750 barrels of crude oil that it believes was caused by heavy rain and flooding. Enbridge said it shut down all of its other pipelines in the area as well.
The region around Cheecham is a major center of oil-sands production, but it wasn't immediately clear how much oil was affected by the Enbridge pipeline shutdowns.
Canada accounted for about 28% of crude-oil imports in the week ended June 14. According to preliminary U.S. data, volume from Canada averaged 2.345 million barrels a day in that week.
"Oil can't go to market" and there is a need to find alternative sources of oil, said Andy Lipow, president of Lipow Oil Associates. "It is unclear how long the outage will be."
Analysts said oil refiners who rely on Canadian crude oil will instead look to Cushing, Okla., to meet their near-term needs. A glut of oil at Cushing has kept U.S. oil prices below Brent prices for some time. However, inventories at Cushing were recently at their lowest level in six months, according to data from the Energy Information Administration.
Traders also expect greater demand for the oil stored at Cushing now that a BP PLC (BP, BP.LN) refinery has restarted a reconfigured crude distillation unit in Whiting, Ind. The refinery has a capacity of 413,000 barrels a day, and analysts said this will add to regional refiners' needs for oil housed in Cushing, putting more upward pressure on prices.
Earlier in the session, crude-oil futures traded lower over fears that credit tightening in China would hurt demand from the world's second-largest oil consumer. China's central bank had indicated that it wouldn't intervene to reduce the credit squeeze.
Meanwhile, gasoline demand was flat as stockpiles were at a "whopping 19 million barrels surplus against a year ago" during the peak summer driving season, said Jim Ritterbusch, head of oil-trading advisory firm Ritterbusch and Associates, in a note.
Front-month July reformulated gasoline blendstock, or RBOB, settled 2.41 cents lower at $2.7376 a gallon. July heating oil settled 1.06 cents higher at $2.8547 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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