West Texas Intermediate oil fell for the first time in six days and widened its discount to Brent on speculation that the closure of an Exxon Mobil Corp. (XOM) pipeline will increase U.S. inventories.
WTI slipped from the highest price in six weeks as Exxon shut the Pegasus pipeline, which moves oil from Illinois to the U.S. Gulf Coast, on March 29 after heavy Canadian crude leaked in Arkansas. Exxon hasn’t said when it will reopen. Brent gained as much as 1.2 percent as the euro strengthened against the dollar for a third day. The European benchmark’s premium to WTI widened the most since early February.
“Inventories are going to grow because they can’t continue to push oil through to the refineries,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “We have to see how long it will remain offline.”
WTI for May delivery dropped 16 cents to settle at $97.07 a barrel on the New York Mercantile Exchange. The contract rose to $97.23 on March 28, the highest settlement since Feb. 14. The volume of all futures traded was 10 percent below the 100-day average for the time of day at 4:19 p.m. The market was closed March 29 for Good Friday.
Brent for May settlement advanced $1.06, or 1 percent, to end the session at $111.08 a barrel on the London-based ICE Futures Europe exchange. Volume was 50 percent below the average for the time of day. Most European markets and businesses are closed today for Easter Monday.
Brent’s premium to WTI widened to $14.01 a barrel after settling at $12.79 on March 28, the narrowest level since June 25. The $1.22 increase is the biggest since Feb. 8, when the gap grew to this year’s high of $23.18 after Enterprise Product Partners LP said on Jan. 31 that capacity will be limited until late 2013 on its Seaway pipeline to the Gulf Coast from Cushing, Oklahoma, the delivery point for the New York contract.
Oil inventories in the central U.S. rose 0.5 percent in the week ended March 22 to 115.4 million barrels, the Energy Information Administration, the Energy Department’s statistical arm, reported last week. Regional supplies were at the highest level for this time of year in EIA data going back to 1990.
“We’ve been making some progress” in moving inland oil to the Gulf, said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. Pegasus “is a setback. It will probably heighten environmental scrutiny. It has greater ramifications.”
The 96,000 barrel-a-day Pegasus pipeline will need to be excavated as Exxon determines what caused the breach, and Exxon is awaiting regulatory approval to begin excavation work and repairs, Alan Jeffers, a company spokesman in Irving, Texas, said yesterday.
Pegasus, a 20-inch (51-centimeter) line that runs to Nederland, Texas, from Patoka, Illinois, serves refineries near the Beaumont, Texas, area close to the Louisiana border, Jeffers said. There are four plants near Beaumont able to process about 1.4 million barrels a day of crude, according to data compiled by Bloomberg.
The U.S. Environmental Protection Agency is categorizing the incident as a “major spill” as it is larger than 250 barrels. It came as TransCanada Corp. (TRP) is proposing to build the Keystone XL pipeline to link Alberta’s oil sands with refineries in the Gulf Coast. Enterprise and Enbridge Inc. (ENB) switched the direction of the Seaway line last year to move oil from the Midwest and Canada to Houston.
Environmental groups such as the National Wildlife Federation pointed to the rupture of the pipeline as a reason why President Barack Obama should reject Keystone.
Futures also dropped as U.S. manufacturing expanded less than forecast in March. The Institute for Supply Management’s factory index fell to 51.3 last month from 54.2 the prior month, the Tempe, Arizona-based group said today. The median forecast of economists surveyed by Bloomberg was 54. Figures higher than 50 signal expansion. The Standard & Poor’s 500 Index decreased 0.4 percent.
“Losses deepened somewhat in conjunction with equity market weakness after the ISM manufacturing index showed an unexpected drop,” Tim Evans, an energy analyst at Citi Futures Perspective in New York, said in an e-mail.
WTI reduced an intraday decline of as much as 1.3 percent as the euro strengthened against the dollar. The European currency reached $1.2868, the highest level since March 26. A stronger euro and weaker dollar increase dollar-denominated oil’s appeal as an investment alternative.
Implied volatility for at-the-money WTI crude options expiring in May was 17.4 percent, up from 16.6 percent on March 28. The figures have slipped from 24.7 percent on Feb. 21.
Electronic trading volume on the Nymex was 415,639 contracts at 4:19 p.m. local time. It totaled 385,611 contracts yesterday, 31 percent below the three-month average. Open interest was 1.72 million contracts.
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