West Texas Intermediate oil rose after operators said the flow of crude on the Seaway pipeline will climb and as the Standard & Poor’s 500 Index surged to a five-year high.
WTI increased 0.8 percent as Enterprise Products Partners LP said Seaway volumes will average 295,000 barrels a day between February and May, up from 180,000 barrels in January. Traders are counting on the pipeline to cut a historic supply glut at Cushing, Oklahoma, where Nymex futures are delivered. The premium of Brent oil traded in London to WTI slipped on Seaway and proposed changes to North Sea pricing formulas.
“WTI is showing strength because we’re looking for Seaway to move over 100,000 barrels more oil in February compared with last month, which will ease the bottlenecks in the midcontinent,” said Jacob Correll, a Louisville, Kentucky-based analyst at Summit Energy Inc., which manages more than $20 billion in companies’ annual energy spending. “The strength in equity markets is spilling over into the crude market.”
WTI futures for March delivery, which expire tomorrow, gained 80 cents to settle at $96.66 a barrel on the New York Mercantile Exchange. The more-active April contract rose 69 cents, or 0.7 percent, to $97.10. The volume of all futures traded was 5.6 percent above the 100-day average at 3:25 p.m.
Floor trading in New York was closed yesterday because of the Presidents Day holiday in the U.S. Yesterday’s electronic transactions will be booked with today’s trades for settlement.
Brent oil for April settlement increased 14 cents to $117.52 a barrel on the London-based ICE Futures Europe exchange. Trading volume was 32 percent below the 100-day average.
The front-month European benchmark grade tightened to a $20.42 premium to April WTI futures. The gap expanded to $23.18 on Feb. 8, the widest since Nov. 26. The spread had grown since Enterprise said Jan. 23 that a bottleneck at Seaway’s Jones Creek terminal in Texas will remain in place until the end of 2013, slowing the movement of oil.
A combination of horizontal drilling and hydraulic fracturing, or fracking, has unlocked supplies trapped in shale formations, causing output to surge and boosting Cushing supplies to a record 51.9 million barrels in January, according to the Energy Information Administration, the Energy Department’s statistical arm. They were at 50.2 million in the week ended Feb. 8.
U.S. oil production rose 67,000 barrels a day to 7.06 million in the week ended Feb. 8, the most since December 1992, the EIA said Feb. 13.
Seaway won’t reach its planned capacity given the anticipated mix of light and heavy crude oil, William Ordemann, senior vice president at Enterprise, said in Feb. 15 testimony before the Federal Energy Regulatory Commission.
Surging U.S. output has led to the development of rail routes to make up for the Seaway delays.
“Seaway isn’t going to reach full capacity when people were expecting,” Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “Other routes have been developed to make up for the delayed start of the line. When there’s an arbitrage this big, the market is going to find ways to profit from it.”
Brent oil has dropped for four days. Platts announced changes to the pricing of the Ekofisk and Oseberg North Sea grades, two of the four components in the the Dated Brent marker used to price more than half the world’s oil.
Ekofisk and Oseberg will be adjusted to account for their superior quality, Jorge Montepeque, global director of markets and pricing at the unit of McGraw-Hill Cos., said yesterday. The other two grades are Brent and Forties.
“The Brent-WTI is coming in quite a bit,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. “The Platts news about the Brent pricing structure, along with what we’ve heard from Shell and other majors, is putting downward pressure on Brent. This will effectively increase the supply of Brent.”
Oil rebounded in the afternoon as the S&P 500 Index surged after investor confidence in Germany climbed to the highest level since April 2010. The S&P 500 gained 0.6 percent and Dow Jones Industrial Average rose 0.4 percent.
Falling fuel prices are weighing on the crude market, said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. Gasoline futures dropped from the highest level in more than four months as surging pump prices raised concern that demand may ebb.
“It looks like gasoline market has overreached,” Lynch said. “Retail prices have climbed a lot more than is justified given the less-than-robust economic recovery. The market is ready for a correction.”
Gasoline for March delivery declined 1.33 cents, or 0.4 percent, to settle at $3.1212 a gallon on the Nymex. Futures touched $3.1639 in intraday trading on Feb. 15, the highest level since Sept. 28.
The retail price for regular gasoline, averaged nationwide, rose 1.8 cents to $3.748 a gallon, the highest level since Oct. 16, AAA said today on its website. Prices have risen every day since Jan. 16, advancing 45.6 cents.
Electronic trading volume on the Nymex was 495,555 contracts as of 3:25 p.m. It totaled 696,266 contracts Feb. 15, 33 percent above the three-month average. Open interest was 1.66 million on Feb. 15, just short of the previous day’s record 1.67 million.