Crude Oil Futures Settle 80 Cents Higher at $96.66

Crude-oil futures prices climbed Tuesday on expectations of some easing of constraints that have kept inventories at lofty levels at a key Midwest terminal.

Traders also said U.S. benchmark crude oil futures for March delivery were higher on position adjustments ahead of the contract's expiration on Wednesday and activity was thin due to a week-long industry event in London.

The Seaway Pipeline, which carries crude oil from Cushing, Okla. to the Gulf Coast refining region, will increase flows from January levels, an executive of the company operating the line said. Operational snags on the line had restricted flows, allowing inventories to build up at Cushing, and pressure futures prices on the New York Mercantile Exchange for the U.S. benchmark contract, which is delivered at Cushing.

Enterprise Products Partners LP's (EPD) Seaway Pipeline is expected to carry an average of 295,000 barrels of oil a day between February and May, according to testimony from an executive filed with U.S. regulators. That is up from only about 180,000 barrels a day in January, the company said.

The pipeline expanded its capacity from 150,000 to 400,000 barrels a day in early January. But the amount of crude carried, or throughput, won't reach capacity for the "foreseeable future" because of the types of oil being moved, said William Ordemann, Enterprise's group senior vice president.

The remarks by the executive, filed Friday with the Federal Energy Regulatory Commission, seem to indicate that the percentage of heavy crude transported in Seaway is larger than originally thought. The nameplate capacity applies to barrels of light, sweet crude, and diminishes when larger loads of heavier crudes are shipped.

Mr. Ordemann said Seaway hopes "at some point" to increase the throughput of its line to about 335,000 barrels a day of oil, but "until Seaway has additional operating experience" with new pumping equipment, "it is not possible to say with precision when or if that will occur."

The fortunes of the U.S. benchmark and North Sea Brent, a global benchmark, recently have been tied to how much crude oil gets from the Midcontinent to the Gulf refineries. With Seaway flows increasing, domestic supplies will reach the Gulf, and compete with imports that are priced in relation to Brent.

Last October, with Cushing stocks bloated, Brent's premium to the U.S. benchmark climbed to near $24 a barrel. By January, on hopes of the Seaway expansion, the premium narrowed to below $16 a barrels. Operation snags that have prevented the line from running at capacity have allowed Brent to trade at a $20.86 a barrel premium on Tuesday.

"The market's not really catching fire today, we're just seeing some profit-taking and position adjustments," said Andy Lebow, vice president for energy futures at Jefferies Bache LLC.

Light, sweet crude oil for March-delivery on the New York Mercantile Exchange settled 80 cents higher, at $96.66 a barrel. The rise was the biggest since Feb. 11. ICE April Brent crude settled 14 cents higher at $117.52 a barrel.

While analysts see some potential for relief in Cushing stockpiles, upcoming weekly data are expected to show nationwide crude inventories rose by 2.2 million barrels last week.

Because of the Presidents Day holiday Monday, release of the inventory data is delayed by a day this week.

The closely watched government survey from the Energy Information Administration is due to be released at 11 a.m. EST Thursday, while the American Petroleum Institute, an industry group, releases its inventory report at 4:30 p.m. EST on Wednesday afternoon.

The survey is expected to show refiners trimmed operations by 0.3 percentage point from EIA's level of 83.8% of capacity last week. The lower runs are expected to trim petroleum product inventories.

Gasoline stocks are expected to drop by 800,000 barrels, while distillate stocks, comprising heating oil and diesel fuel, are expected to fall by 1.5 million barrels.

Expectations of tighter supplies have lifted the price of reformulated gasoline blendstock futures sharply, but profit-taking cut prices Tuesday. Front-month RBOB prices have gained more than 15%, or about 43 cents a gallon, since Jan. 15 amid the seasonal shift from winter-grade to summer-grade fuel.

Reformulated gasoline futures prices on the New York Mercantile Exchange, which have climbed in nine of the past 10 weeks, were off 1.33 cents, at $3.1212 a gallon, after a 20-week high Friday.

March heating oil settled 2.98 cents lower, at $3.1806 a gallon, a two-week low. The drop in dollar-terms was the biggest since Jan. 15.

Angel Gonzalez contributed to this report.


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