Oil rose as the reversal date for the Seaway crude pipeline was moved up, causing the spread between New York-traded futures and Brent in London to narrow. Retail sales in the U.S. increased more than forecast in March.
The price gap between U.S. West Texas Intermediate crude and Brent was the smallest since February after Enbridge Inc. (ENB) and Enterprise Products Partners LP (EPD:US) said they would start moving oil from Cushing, Oklahoma, to the U.S. Gulf Coast via the pipeline in May. The Commerce Department said retail sales gained almost three times as much as projected.
“The Seaway pipeline is going to be reversed and there will be more supply heading to the Gulf Coast,” said Tom Bentz, a director with BNP Paribas Prime Brokerage Inc. in New York. “When you look at the U.S. economic data, there’s been a lot of positive reports. If the U.S. economy continues to improve, demand is going to stay steady.”
Crude for May delivery gained 10 cents to settle at $102.93 a barrel on the New York Mercantile Exchange. Prices are up 4.1 percent this year.
Brent oil for June settlement dropped $2.53, or 2.1 percent, to $118.68 a barrel on the ICE Futures Europe exchange.
The spread between the front-month Brent contract and the comparable New York futures for delivery at Cushing shrank to $15.31 a barrel in trading today, the narrowest differential since Feb. 28.
Enbridge and Enterprise said they plan to switch the flow on Seaway about May 17, according to a filing with the Federal Energy Regulatory Commission. That’s earlier than a previous June 1 start date. The reversal is forecast to reduce a glut of crude at Cushing, the U.S. Midcontinent pipeline hub.
Nymex futures fell as much as 1 percent on the reversal news, even as the spread contracted, before rebounding in the last hour of trading.
“The Seaway pipeline is going to start shipping oil to the Gulf Coast two weeks ahead of the schedule, and that headline seemed to trigger the sharp selloff,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “You are getting more oil to the market, giving refineries cheaper oil.”
Inventories at Cushing, the delivery point for Nymex oil futures, increased 0.7 percent to 40.6 million barrels in the week ended April 6, the highest level in 11 months, according to the Energy Department.
“The positive retail sales number helped the oil market and we were trying to go to the positive territory, only to see prices falling back down after the announcement of the Seaway pipeline reschedule,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut.
New York futures also rose after the Commerce Department reported a 0.8 percent gain in U.S. retail sales in March followed a 1 percent advance in February. The median forecast of 81 economists surveyed by Bloomberg News called for a rise of 0.3 percent.
“Retail sales came in pretty good,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis. “We have a lot of positive news out there.”
Total products supplied, a measure of fuel consumption, increased 4.5 percent in the week ended April 6 to 19 million barrels a day, the biggest advance since Feb. 10, according to the Energy Department.
Prices dropped earlier after the first international talks in 15 months on Iran’s nuclear program yielded an agreement for the parties to reconvene. The April 14 negotiations in Istanbul were called “constructive” by both Catherine Ashton, the European Union’s foreign policy chief, and Iran’s lead negotiator, Saeed Jalili.
The United Nations’ five permanent Security Council members plus Germany will meet Iranian delegates in Baghdad on May 23, Ashton said yesterday.
“Talks with Iran were somewhat positive,” said Rich Ilczyszyn, chief market strategist and founder of Iitrader.com in Chicago. “It’s a little bit better than some people had expected and it’s kind of bearish for oil.”
Israeli Prime Minister Benjamin Netanyahu criticized the outcome as giving Iran more time to continue enriching uranium, the process capable of producing fuel for a nuclear bomb.
Hedge funds reduced bullish oil wagers by 24,860, or 11 percent, to 191,827 contracts in the seven days ended April 10, according to the Commodity Futures Trading Commission’s Commitment of Traders report on April 13.
Electronic trading volume on the Nymex was 623,441 contracts as of 3:21 p.m. in New York. Volume totaled 501,173 contracts on April 13, 22 percent below the three-month average. Open interest was 1.59 million.
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