Crude Oil Drops as Enbridge Says Pipeline Will Start Tomorrow

Oil fell to a one-week low as Enbridge Energy Partners LP prepared to start a pipeline that supplies Canadian crude to refineries in the U.S. Midwest.

Futures dropped 1.9 percent after Enbridge said it plans to send oil through the pipeline tomorrow after repairing a leak discovered last week in Romeoville, Illinois. The company said it has discussed the startup with federal regulators. Enbridge shut a line in Michigan on July 26 after it ruptured.

“A lot of buyers came into the market off the Enbridge debacle,” said Rich Ilczyszyn, a senior market strategist at Lind-Waldock, a broker in Chicago. “It’s a regional issue, but the thing this story brings to light is that the infrastructure here in the Midwest is really old, so everyone’s hypersensitive.”

Crude for October delivery fell $1.45 to settle at $74.57 a barrel on the New York Mercantile Exchange, the biggest drop since Aug. 31. Prices have declined 6 percent this year.

Oil futures topped $78 a barrel this week following the closure of Houston-based Enbridge’s Line 6A, which can carry 670,000 barrels a day of crude, equal to more than one-third of Midwest imports.

The 466-mile (750-kilometer) link has been shut since Sept. 9 after spilling about 6,100 barrels of oil from a section in Romeoville, 30 miles southwest of Chicago. The 34-inch line runs from Superior, Wisconsin, to Griffith, Indiana.

Second Enbridge Leak

Enbridge’s 190,000 barrel-a-day Line 6B leak in Michigan was the first on the Lakehead System. Crude oil stored along the system, which delivered an average 1.62 million barrels a day in 2008, grew 11 percent from last week as shipments on two of the company’s lines remained halted, two shipper bulletins obtained by Bloomberg News showed.

“We’re really back around the levels that we were at last Friday” after the Enbridge pipeline leak was discovered, said Matt Smith, a commodities analyst for Summit Energy in Louisville, Kentucky. “The last few days, we’ve really seen that premium unwind.”

Gasoline for October delivery fell 3.78 cents, or 1.9 percent, to $1.9247 a gallon, the third consecutive decline. Heating oil for October delivery lost 3.36 cents, or 1.6 percent, to $2.099 a gallon.

Analysts see potential for an increase in demand from emerging markets.

Bank of America Merrill Lynch raised its forecast for crude consumption by 200,000 barrels to 1.7 million barrels a day for 2010, citing stronger-than-expected consumption in the U.S. and China, analysts led by Francisco Blanch in New York said in a report dated yesterday.

Non-OPEC Supplies

The bank increased its estimates for supplies from outside OPEC in 2010 by the same amount, citing new projects in Brazil, Russia and China.

The Organization of Petroleum Exporting Countries forecast last week that non-OPEC oil supply will grow by 920,000 barrels a day this year to 52.1 million barrels a day.

The producer group will reduce crude shipments by 1.2 percent this month as the global recovery slows and refiners in the U.S. and Europe finish maintenance, Oil Movements said, the ninth weekly decline reported by the tanker-tracker.

OPEC, which supplies about 40 percent of the world’s crude oil, will ship 23.2 million barrels a day in the four weeks to Oct. 2, down from 23.47 million in the month ended Sept. 4, the Halifax, England-based consultant said today in a report. The data exclude Ecuador and Angola.

Jobless Claims

Oil pared losses earlier today after a U.S. government report showed applications for unemployment benefits unexpectedly fell last week to the lowest level in two months. Signs that the economy is improving indicate that crude-oil demand may increase.

Initial jobless claims dropped by 3,000 to 450,000 in the week ended Sept. 11, Labor Department figures showed today in Washington. The median forecast was for a rise to 459,000, according to a Bloomberg News survey.

“The employment picture is more supportive than it looked even a few weeks ago,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “Jobless claims at or below 450,000 will keep oil from falling as much as would have otherwise been the case given that the Enbridge pipeline is coming back.”

The U.S. producer price index increased 0.4 percent, the most in five months and twice the gain in July, Labor Department figures showed today in Washington. The median forecast was for a 0.3 percent rise, according to a Bloomberg News survey.

Brent Crude

Brent crude for November settlement on the London-based ICE Futures Europe exchange fell 94 cents, or 1.2 percent, to $78.48 a barrel. November Brent cost $2.74 a barrel more than November Nymex futures.

Oil volume in electronic trading on the Nymex was 668,347 contracts as of 3:19 p.m. in New York. Volume totaled 900,670 contracts yesterday, 43 percent above the average of the past three months. Open interest was 1.34 million contracts.

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