Crude-oil futures prices posted their biggest decline in a month Wednesday, falling 1.5% to $95.23 a barrel, on expectations of a seasonal drop in demand from U.S. refiners.
The decline in prices came after crude climbed nearly $3 a barrel over the previous four days, culminating with the February light, sweet crude oil futures contract on the New York Mercantile Exchange expiring Tuesday at a four-month high.
Profit-takers ruled the day, cashing in on the recent gains, and the selloff accelerated with late-session news of an operating snag on the key Seaway Pipeline, which carries oil out of the Nymex contract delivery point of Cushing, Okla., to the key Gulf Coast refining region.
Capacity on the line recently tripled to 450,000 barrels a day and helped to drive Nymex prices up by $12 a barrel since early December, on hopes that record-high stocks at Cushing would decline and the oil would fetch a higher price in the Gulf.
But operators of the line said "unforeseen constraints" have limited the flow to 175,000 barrels a day for an unspecified period.
"The key is the duration," said Andrew Lebow, senior vice president of energy futures at Jefferies Bache in New York.
The potential for U.S. crudes now bottlenecked at Cushing to compete with imports in the Gulf has lifted Nymex crude at the expense of North Sea Brent, the pricing bases for much foreign crude sent to the U.S.
"Every bank in the world has been advising buy WTI-sell Brent," Mr. Lebow said, referring to the U.S. benchmark, West Texas Intermediate crude oil.
Nymex crude oil for March delivery settled $1.45 a barrel lower, at $95.23 a barrel, the lowest price in a week. The one-day drop was the most since Dec. 21. ICE March Brent crude oil rose 38 cents, to $112.80 a barrel, the highest price since Oct. 17. Brent's premium to the U.S. benchmark of $17.57 a barrel was the highest since Jan. 14.
Mark Waggoner, president of Excel Futures in Bend, Ore., called crude-oil futures "extremely overbought" and said he expects a pullback in the next few weeks to $90 a barrel, where he would be a buyer.
Analysts surveyed by Dow Jones Newswires expect upcoming government oil-inventory data to show crude-oil stocks fell 1.7 million barrels last week, while refineries trimmed operations by 0.4 percentage point, to 87.5% of capacity. Gasoline stocks are expected to show a 900,000-barrel rise, while distillate stocks (diesel/heating oil) are expected to drop by 100,000 barrels.
The data, for the week ended Jan. 18, are set for release by the Energy Information Administration at 11 a.m. EST Thursday, a day later than usual due to the government holiday celebrated Monday.
U.S. refiners have been processing crude at a rate of nearly 15.2 million barrels a day in the first two weeks of January, while the EIA has projected a monthly average of 14.5 million barrels a day, the lowest in a year.
Rising U.S. crude-oil output, now at a 20-year high above 7 million barrels a day, has plumped up crude-oil inventories, which stand 8.8% above the five-year average level, EIA data show. Last week, crude-oil stocks were at a 30-year high for the week. Inventories at Cushing have climbed nearly 14% since early December to record levels near 52 million barrels.
Gasoline stocks last week were the highest for this time of year on records beginning in 1990 and have gained 17% in the past eight weeks. But in the New York Harbor region, the delivery point for the contract, inventories were the lowest on record for this time of year are more than 14% below the five-year average.
February-delivery reformulated gasoline blendstock futures rose for a fifth straight session, up 0.39 cent to $2.8338 a gallon, the highest settlement since Oct. 16.
Gene McGillian, broker and analyst at Tradition Energy, said the rise of more than 12 cents in RBOB futures in the past week, reflects expectation that high inventories will tighten when refinery operations slow. "We're likely to see a more extensive [maintenance] season than maybe some people anticipated," he said.
Nymex heating oil futures settled 0.99 cent higher, at $3.0781 a gallon. The fourth straight rise put prices at the highest level since Oct. 30.
Copyright (c) 2012 Dow Jones & Company, Inc.
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