U.S. crude oil futures ended modestly higher Friday ahead of a major pipeline expansion which analysts said will lead to still-higher prices for the benchmark contract.
Traders sorted through the fog of a contradictory U.S. oil-inventory report to push prices up from earlier losses, guided by the notion that a sharp increase in the Seaway Pipeline's flow to the Gulf Coast refining hub will slash record-high stockpiles now in place at Cushing, Okla., the delivery point for the New York Mercantile Exchange's benchmark contract.
Volumes on the Seaway line from Cushing to the Gulf are set to nearly triple this weekend to 400,000 barrels a day from 150,000 barrels a day, as an expansion comes on line. Analysts said the move will allow crude previous trapped in the Midwest market by few exit routes to compete in the Gulf market with crude oil imports, lifting the value of the Nymex contract.
Light, sweet crude oil futures for February delivery on the New York Mercantile Exchange settled up 17 cents at $93.09 a barrel and posted a 2.5% rise in a holiday-shortened week which also saw a deal in Washington to avoid the so-called fiscal cliff.
The rising fortunes for the Nymex contract came at the expense of ICE North Sea Brent, which reflects the value of internationally traded crude which reach the U.S. Gulf. ICE February North Sea Brent crude oil settled 83 cents lower at $111.31 a barrel. The drop in Brent was the biggest in two weeks and Brent's premium to Nymex crude fell to a three-month low of $18.22 a barrel.
Andrew Lebow, analyst at Jefferies Bache, said many investors were buying the Nymex contract and selling the ICE Brent contract on Friday.
Nymex prices wobbled throughout the session, erasing what had been a $1.40-a-barrel loss, to post a slim gain that left prices just three cents a barrel below the three-month high set Wednesday.
Traders shrugged off a massive 11.1-million-barrel drop in nationwide crude oil inventories as an annual end-of-year occurrence linked to tax considerations.
"You've got to put this one to the side and look at things over the next couple of weeks," said Kyle Cooper, analyst at IAF Advisors, referring to the end-year oil inventory report. Data from the Energy Information Administration showed that 93% of the huge drop in crude oil stocks occurred in the U.S. Gulf Coast refining region, where lower end-year inventories means lower tax exposure for companies.
The tax issue is an annual end-year issue, of varying intensity, for the oil market, as refiners lower inventory by temporarily reducing imports. But the situation rebalances in the ensuing weeks, Mr. Cooper said.
Energy Information Administration data show crude oil stocks fell 3% nationwide, which James Beck, EIA analyst, said was the biggest drop since Dec. 16, 2011. On a per-barrel basis, the decline last week was the largest since Feb. 16, 2001, he said.
EIA data show crude oil imports plunged 931,000 barrels a day, to 7.094 million barrels a day, the lowest level since Feb. 20, 1998. In the key Gulf Coast region, imports were the lowest since September 2008, when Hurricanes Gustav and Ike disrupted operations.
Meanwhile, Cushing stocks were 20.5 million barrels, or 70%, above year-earlier levels at a record 49.75 million barrels, but drawdowns are expected with the pipeline expansion.
EIA data also showed stocks of distillate (heating oil/diesel) and gasoline rose by less than the large gains reported last Thursday afternoon by the American Petroleum Institute. But demand for heating oil and gasoline dropped from both a week earlier and a year earlier in the latest EIA report. Distillate demand was down 12.3%, at four-month low last week, EIA data showed, and the level of stocks relative to demand topped the five-year average for the first time in four months. Meanwhile, the level of gasoline stocks nationwide relative to demand hit a nine-month high, EIA data show.
February heating oil futures prices were down 2.86 cents at $3.0177 a gallon,. Reformulated gasoline blendstock futures for February were 3.34c lower, at $2.7643 a gallon. The drop was the biggest since Dec. 13 and the price was the weakest since Dec. 24.
Copyright (c) 2012 Dow Jones & Company, Inc.
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