Pipe blocked because of present output

It's not an output on the flow. It's an output and then a T junction. Outputs also always try to go to inputs so if  you want the pipe to flow up, you will need to have a bridge and connect to the bridge's output or after it

There is a mod called Pipe flow overlay that will show you arrows over the pipes to indicate the direction of the flow.  This can be useful as a teaching tool to learn how pipe flow is determined.

Thanks for the responses, and great suggestion with the mod.
I was sure it was a bug since the upward flow works when removing the junction - Didn't think it would be intentional.