Global benchmark oil prices diverged sharply Monday, with North Sea Brent crude gaining on concerns over the shutdown of a U.S. pipeline in the key Gulf Coast refining region.
U.S. crude oil futures on the New York Mercantile Exchange settled 16 cents lower, at $97.07 a barrel, on profit taking after a 5.2% gain over the previous five sessions.
Traders, meantime, bid up the price of North Sea Brent crude oil futures on the belief that oil imports that compete with Brent will be strongly sought after by U.S. Gulf Coast refiners after the closure of Exxon Mobil's Pegasus Pipeline.
The 95,000 barrels a day pipeline that brings Canadian crude oil from Patoka, Ill. to Nederland, Texas was closed Friday after a leak on a section in Arkansas. The company hasn't given a likely date for restarting the line yet.
Analysts said the closure of the pipeline means that crude oil inventories will continue to build up at bottlenecks in the middle of the country, such as the Cushing, Okla. terminal that is the delivery point for the Nymex crude oil futures contract. Refiners have in recent week increased the volumes of oil that they move from Cushing, using shipments by rail and truck to augment stunted pipeline flows.
Expectations of a strong and steady draining of inventories at Cushing have brought strong pressure to bear on Brent prices in recent week and lifted the value of the Nymex benchmark contract. Greater moves of oil out of Cushing would make Gulf refiners less dependent on crude oil imports, which are priced against Brent, a global benchmark and would bolster U.S. crude oil prices. "Brent has dropped so much recently that we are seeing a turnaround in that now," said Gene McGillian, analyst and broker at Tradition Energy.
ICE North Sea Brent for May delivery was up $1.07, or 1%, at $111.09 a barrel late Monday. Brent posted a premium of $14.02 a barrel to the Nymex contract, the most since March 21. Brent ended March at $12.79 a barrel above the Nymex contract, down from a premium at the end of February of $19.33 a barrel.
Mr. McGillian said prices of U.S. oils were also undermined by indications of slower than expected growth in the manufacturing sectors in both the U.S. and China, the world's top two oil consumers.
Meantime, traders also are concerned about rising oil inventories in the U.S.
U.S. crude oil inventories rose 1.9 million barrels in the week ended March 29, according to early estimates from five analysts surveyed by Dow Jones Newswires. A rise of that size would put crude stocks at their highest level since July 1990 and at their highest end March level since 1931.
The closely watched government inventory data from the Energy Information Administration is due to be released at 10:30 a.m. EDT Wednesday. The American Petroleum Institute, a trade group, releases its data at 4:30 p.m. EDT on Tuesday.
Gasoline stocks are expected to drop by 300,000 barrels, while distillate stocks, comprising heating oil and diesel fuel, were expected to fall 400,000 barrels. Refiners, returning from maintenance work, are expected to boost capacity utilization by 0.4 percentage point to 86.1%.
Elsewhere, May heating oil settled up 2.17 cents, at $3.0687 a gallon, while May reformulated gasoline blendstock futures were 0.91 cent lower, at $3.1015 a gallon.
Copyright (c) 2012 Dow Jones & Company, Inc.
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