Oil Mixed with WTI Rising Due to Canadian Pipeline Issues

Oil prices were mixed Tuesday, with the U.S. benchmark gaining ground on its global counterpart thanks to Canadian pipeline problems.

West Texas Intermediate futures for April delivery CLJ8, +0.10%  rose 53 cents, or 0.9%, to $62.08 a barrel. Brent crude LCOJ8, -0.84% the global benchmark, lost 8 cents, or 0.1%, to $65.59 a barrel. The move left the gap between Brent and WTI prices the narrowest in six months.

The narrowing of the spread between the two benchmarks turns in large part on what’s occurring in Cushing, Okla., the Nymex delivery hub for WTI futures. Data from the Energy Information Administration released on Feb. 14 showed the amount of oil in Cushing dropped to 32.7 million barrels in the week ended Feb. 9, from 36.3 million the previous week.


West Texas Intermediate graph

Analysts said pipeline issues were the main driver.

“For one thing, less crude oil is being transported from Canada to Cushing due to the restricted capacity of the Keystone pipeline. And for another, new pipeline capacities mean more crude oil is leaving Cushing,” wrote analysts at Commerzbank, in a Tuesday note.

But the Commerzbank analysts questioned whether the spread could continue to narrow, noting that light Louisiana sweet crude, the reference type for comparable oil on the U.S. Gulf Coast, costs only $2 a barrel more than WTI. That provides insufficient incentive for Gulf Coast refineries to buy WTI from Cushing.

Meanwhile, refinery maintenance in several regions including Europe is putting a damper demand for crude causing a divergence of the crude grades.

“You still have those low stocks in Cushing supporting WTI on the other hand you have stock builds in the U.S. Gulf,” said Olivier Jakob, managing director of Petromatrix, an oil research firm in Switzerland. “There are also some signs of physical pressure in the crude oil market in Europe, partly due to lower crude oil demand due to refinery maintenance.”

via MarketWatch

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza