West Texas Intermediate crude rose for the first time in four days after TransCanada Corp. said it expects to complete work on the southern portion of its Keystone pipeline expansion by the end of October.
The spread between WTI and Brent oil, the European benchmark, narrowed the most in two weeks on speculation that the link will help reduce stockpiles at Cushing, Oklahoma, the delivery point for the WTI contract. The 700,000-barrel-a-day pipeline will run to the Texas Gulf Coast from Cushing. Futures extended gains after a government report showed that stockpiles at the hub fell to the lowest level since February 2012.
“The completion of the Keystone pipeline portion is bullish for WTI but not for the globe,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “We are getting closer to the completion of another exit route from Cushing, which will further reduce supply pressure at the hub.”
WTI crude for November delivery rose $2.06, or 2 percent, to $104.10 a barrel on the New York Mercantile Exchange. It was the highest settlement since Sept. 20 and the biggest gain since Sept. 18. The contract dropped to $102.04 yesterday, the lowest close since July 3. The volume of all futures traded was 34 percent above the 100-day average at 3:08 p.m.
Brent oil for November settlement gained $1.25, or 1.2 percent, to end the session at $109.19 a barrel on the London-based ICE Futures Europe exchange. The European benchmark traded at a $5.09 premium to WTI, down from $5.90 yesterday.
Linefill on the new pipeline segment is expected to begin shortly after the commissioning at the end of this month, Les Cherwenuk, project director for TransCanada, said in an interview with Bloomberg after a speech at Hart Energy’s Executive Energy Club in Houston.
He wouldn’t comment on the crude mix, though he said that filling the pipeline for the first time, a process forecast to take 30 days, will be easier with lighter crude.
The middle section of Keystone is already finished and the southern portion should be completed in the next week, Cherwenuk said. The 195-mile (314-kilometer) link originating at Cushing still needs to be completed, he said.
Cushing supplies slipped 59,000 barrels to 32.8 million last week, according to the Energy Information Administration. Stockpiles at the hub have dropped 34 percent over the past 13 weeks as improved pipeline networks and shipments by rail eased a North American supply glut created by rising oil production from shale formations.
“The market is interpreting additional pipeline capacity away from Cushing, Oklahoma, as additional demand for WTI barrels,” said Tim Evans, an energy analyst at Citi Futures Perspective in New York. “This does not increase refinery crude runs or consumer fuel use. All it does is move more oil to the Texas coast at a lower cost.”
Nationwide crude inventories surged 5.47 million barrels to 363.7 million last week, the biggest gain since April, according to the EIA, the Energy Department’s statistical unit.
Refineries operated at 89 percent of capacity last week, the lowest level since June 7, the report showed. Refineries often idle units in October for maintenance programs.
“The completion of additional pipeline capacity will accelerate the draw in Cushing,” said Tom Finlon, Jupiter, Florida-based director of Energy Analytics Group LLC. “The decline is continuing even though refinery runs have decreased the last couple weeks. The draws should continue through the maintenance season, which is important.”
Gasoline stockpiles rose 3.5 million barrels to 219.7 million, the report showed. Supplies of distillate fuel, a category that includes heating oil and diesel, declined 1.68 million barrels to 129.2 million.
Total fuel consumption dropped 3 percent to 18.7 million barrels a day last week, the EIA said. Gasoline use slipped 3.6 percent to 8.53 million barrels a day, the least since May 10.
Futures dropped 0.6 percent earlier as a U.S. government shutdown entered a second day. Congress failed to pass a budget for the fiscal year that began yesterday, causing a partial closing of government services and forcing 800,000 federal workers off the job.
A partial shutdown lasting one week would probably shave 0.1 percentage point from economic growth, according to the median estimate of economists surveyed by Bloomberg, with the costs accelerating if the closing persists.
“We’re trying to assess what the longer-term consequences of the government shutdown will be for the crude market,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston. “There’s a potential that permitting and approval of projects will be delayed, which will be bullish in the long term.”
Separately, the U.S. began final extraordinary measures to avoid breaching its debt limit, and its ability to borrow will end Oct. 17, Treasury Secretary Jacob J. Lew said. Goldman Sachs Group Inc. Chief Executive Officer Lloyd Blankfein left a White House meeting with President Barack Obama today and said Congress is risking the economic recovery if it doesn’t raise the debt ceiling.
Implied volatility for at-the-money WTI options expiring in November was 19.7 percent, down from 21.4 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 713,653 contracts as of 3:09 p.m. It totaled 461,221 contracts yesterday, 25 percent below the three-month average. Open interest was 1.86 million contracts.