Crude Soars +3.2% On Pipeline Move
NEW YORK (Dow Jones Newswires), Nov. 16, 2011
U.S. crude oil futures surged 3.2%, settling at a five-and-a-half-month high of $102.59 a barrel on news of a pipeline reversal expected to ease a logjam that had been depressing values of benchmark West Texas Intermediate crude oil.
The Seaway pipeline will be reversed, allowing 150,000 barrels a day of crude to move out of the congested Cushing, Okla., hub to the Gulf Coast refining region by the second quarter of 2012, pipeline operators Enbridge and Enterprise Products Partners said. By early 2013, capacity is expected to reach 400,000 barrels a day on the reversed line.
"The big news is the Seaway move," said Tom Bentz, a director at BNP Paribas Commodity Futures, adding that freer access to the crude will boost its value.
Traders said the move will unlock value in the crude, which has been largely confined to use by Midwest refiners because of its delivery to the landlocked Cushing hub. Benchmark WTI is the crude most often delivered against the New York Mercantile Exchange light, sweet crude futures contract. The lack of infrastructure to move WTI crude out of Cushing has kept the crude sharply undervalued against world market prices.
News of the reversal had investors aggressively selling ICE Brent crude while buying up Nymex crude contracts, traders said. Brent's price had gained sharply against WTI this year, hitting a peak premium of $27.90 a barrel in mid-October.
Brent's premium to the U.S. benchmark settled at $9.29 a barrel, the narrowest gap since March 8. On Tuesday, when the ICE December Brent contract expired, the spread was $13.02 a barrel.
Light, sweet crude oil for December delivery on the Nymex settled $3.22 higher, at $102.59 a barrel, the highest since May 31. ICE Brent for January delivery settled 30 cents lower, at $111.88 a barrel, after a session low of $110.14.
"The pressure is off and we'll definitely go higher," said analyst Dominick Chirichella at the Energy Management Institute, referring to Nymex prices, which already have climbed 38% since dropping below $75 a barrel on Oct. 4.
Despite a still "fragile" economic outlook, Chirichella sees Nymex per-barrel crude prices in a range of $95 to $105. Signs of a recovery or heightened tension with Iran could push the top end of the near-term range to $110, he said.
Analysts at J.P. Morgan lifted their fourth-quarter 2011 price forecast for the U.S. benchmark by $8 to $98 a barrel, and cut the Brent forecast by $3 to $112 a barrel.
U.S. weekly oil inventory data were largely in line with expectations and overshadowed by the pipeline news.
Crude oil stocks fell 1.056 million barrels in the week, while refiners increased operations relative to capacity by 2.2 percentage points in the week ended Nov. 11, according to the Energy Information Administration. Analysts surveyed by Dow Jones Newswires expect crude oil stocks to drop by 800,000 barrels, while refiners lift operations relative to capacity by 0.2 percentage point.
Distillate stocks--heating oil and diesel--dropped by 2.136 million barrels, compared with an expectation of a 3-million-barrel drop. Gasoline stocks gained by 992,000 barrels, compared with an expected drop of 1.1 million barrels.
Reformulated gasoline blendstock futures for December settled 1.6%, or 4.16 cents higher, at $2.6273 a gallon.
December-delivery heating oil futures prices were 1.2%, or 3.67 cents, lower, at $3.1346 a gallon.
Copyright (c) 2011 Dow Jones & Company, Inc.
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