Oil price jumps as Seaway pipeline launches

Oil rose to the highest level in almost four months as service began on the expanded Seaway pipeline and heating oil jumped.

Futures advanced 0.6 percent after Seaway resumed service to the Gulf Coast from Cushing, Oklahoma, on Jan. 11. The line’s increased capacity of 400,000 barrels a day may help ease a glut at Cushing that has held down prices of West Texas Intermediate crude. Heating oil
climbed the most in nearly two months on forecasts for cold weather in the East Coast and Midwest.

“Seaway is giving oil a boost,” said Phil Flynn, senior market analyst at the Price Futures Group in Chicago. “We are going to have some very cold weather and it’s increasing demand expectations for heating oil.”

WTI oil for February delivery increased 58 cents to $94.14 a barrel on the New York Mercantile Exchange, the highest settlement since Sept. 18. Prices have jumped 2.5 percent this month. Prices accelerated gains in the last 15 minutes of floor trading as U.S. equities pared losses. Trading volume was 12 percent above the 100-day average.

Brent for February settlement rose $1.24, or 1.1 percent, to end the session at $111.88 a barrel on the London-based ICE Futures Europe exchange. Volume was 5.5 percent more than the 100-day average.

The European benchmark contract was at a premium of $17.74 to WTI. It settled at $17.08 on Jan. 11, the narrowest gap based on closing prices since Sept. 19.

Cushing Inventories

The 500-mile (805-kilometer) Seaway pipeline resumed full service after shutting Jan. 2 to complete the final connections necessary to boost the line’s capacity by 250,000 barrels from 150,000, Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) said on Jan. 11.

Seaway’s expansion may reduce record inventories of crude at Cushing, the delivery point for U.S. benchmark WTI oil futures. Cushing stockpiles climbed to 50.1 million barrels in the week ended Jan. 4, the highest level in data going back to 2004 from the Energy Information Administration, the Energy Department’s statistical arm.

“This is another milestone on the road to eventually relieving the structural oversupply situation in the U.S. Midcontinent,” said Mike Wittner, the New York-based head of commodities research at Societe Generale SA, in a note to clients today.

The Seaway Pipeline expansion more than doubles the line's crude carrying capacity from Cushing Okla. to the Gulf Coast. (Houston Chronicle)

WTI slid in 2012 as the U.S. shale boom deepened a glut at Cushing, America’s biggest storage hub and the delivery point for the New York contract. That left it at an average $17.48 a barrel below Brent last year, versus a premium of about 95 cents in the 10 years through 2010.

Seaway “should give WTI a boost,” said Tariq Zahir, a New York-based commodity fund manager at Tyche Capital Advisors.

Heating Oil

Crude also advanced as heating oil jumped on forecasts for cold weather on the U.S. East Coast and in the Midwest next week. About 26 percent of households in the Northeast use heating oil for heating, according to the EIA.

Computer models show that temperatures across the regions will be 5 degrees Fahrenheit below normal from Jan. 19 to Jan. 23, said Matt Rogers, president of Commodity Weather Group LLC in Bethesda, Maryland. The low in New York on Jan. 22 may be 16 degrees Fahrenheit, 11 below normal, according to AccuWeather Inc. in State College, Pennsylvania.

Heating oil for February delivery climbed 5.40 cents, or 1.8 percent, to end at $3.0625 a gallon on the Nymex, the biggest gain since Nov. 19.

S&P 500

Prices extended gains as the Standard & Poor’s 500 Index pared losses. The index was little changed after falling as much as 0.4 percent earlier.

“Oil is following the equities,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “Seaway will help reduce the Cushing supply.”

Crude fell as much as 0.7 percent earlier as the S&P 500 dropped and on concern political disagreements over the nation’s debt ceiling that may affect economic growth.

President Barack Obama warned Congress against using the debt ceiling as leverage in the spending debate, saying “markets could go haywire” and government payments, from Social Security checks to military salaries, will be held up if the limit isn’t raised.

Republican lawmakers “will not collect a ransom” if they delay increasing federal borrowing authority, Obama said today at a White House news conference.

“The oil market is a little nervous about the debt ceiling, and people covered their positions,” Flynn said.

Electronic trading volume on the Nymex was 497,274 contracts as of 3:30 p.m. Volume totaled 604,531 contracts on Jan. 11, 25 percent above the three-month average. Open interest was 1.50 million.