Can Keystone XL pipeline shutdown increase oil prices in the US? Experts answer

The recent shutdown of the Keystone XL pipeline has raised concerns over a potential rise in oil prices across the United States. With oil prices already volatile due to global market conditions, experts are now closely monitoring the impact of this shutdown on both domestic energy prices and broader economic implications.

The Keystone XL pipeline’s recent closure has sparked worries about possible increases in oil costs nationwide. (Reuters/representative )

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Keystone XL Pipeline

The Keystone XL pipeline, a proposed extension of the original Keystone pipeline system, was a critical project intended to transport crude oil from Alberta, Canada, to refineries in the United States, specifically in the Gulf Coast, as reported by Reuters.

However, the shutdown of this pipeline, which has been plagued by delays and political controversies over the years, has now officially taken effect, raising significant concerns about energy supply and pricing.

The pipeline was expected to carry around 830,000 barrels of oil per day, a substantial portion of the oil needed to meet demand in the US. With this source of crude oil no longer available, many are questioning how this will affect domestic oil production and prices, especially as the US has relied on a mix of both domestic and imported oil to meet its energy needs.

How will the shutdown impact oil prices in the US?

The closure of the Keystone pipeline could indeed drive up oil prices in the United States, albeit in varying degrees depending on multiple factors. One primary concern is the loss of access to Canadian oil, which was a major contributor to supply in refineries along the Gulf Coast.

Tom Kloza, global head of energy analysis at OPIS, noted that while the immediate price hike might not be astronomical, gasoline prices could rise due to the ripple effects in crude oil costs. “The pipeline provided a key artery for oil shipments, and its absence could lead to tighter supply,” Kloza explained. “While the US does produce a substantial amount of its own crude, the loss of this import pipeline means we may have to rely more on foreign sources or more expensive alternatives.”

In fact, the shutdown of the Keystone XL pipeline has already resulted in supply chain disruptions, which can cause prices to fluctuate. Crude oil typically accounts for around 50% of the cost of gasoline, so any significant shift in crude prices is directly tied to what consumers pay at the pump.

Alternatives and rising costs of oil imports

With the Keystone pipeline out of commission, US refineries will now have to turn to alternative sources of oil, potentially from offshore suppliers or alternative pipeline routes, such as those coming from the Permian Basin in Texas or even increased imports from the Middle East. These alternative methods are not without their own set of challenges.

Imports from other regions could come at a higher cost, especially if international shipping and trade policies are affected by the pipeline’s closure. Additionally, domestic production may struggle to meet the shortfall, further escalating prices as supply fails to catch up with demand.

“While the US has become less dependent on foreign oil in recent years, certain refiners still rely on foreign imports to meet refinery capacity,” said John Kilduff, a founding partner at Again Capital, an energy investment firm. “If supply chains are disrupted and the price of imported crude rises, we will see the knock-on effect at the pump for American consumers.”