U.S. crude futures settled up 1.2% Tuesday as investors looked to a coming pipeline reversal that is expected to bring U.S. oil in line with global prices.
The Seaway pipeline reversal, designed to help ease a supply glut in Cushing, Okla., that has been depressing U.S. prices, will begin delivering crude to the Gulf Coast refinery belt in a month, or two weeks earlier than expected.
Traders said the move will unlock the value of the landlocked U.S. benchmark, by making the crude available to Gulf Coast refineries. At the same time, the move cuts the value of the European benchmark, Brent crude, as competitive crudes become more plentiful in the region.
Light, sweet crude for May delivery on the New York Mercantile Exchange settled up $1.27 a barrel, at $104.20 a barrel, the highest price since April 2.
ICE North Sea Brent settled 10 cents higher, at $118.78 a barrel. Brent's premium to the U.S. benchmark was $14.58 a barrel at the settlement, the lowest level since Feb. 1. Just two weeks earlier, with Brent near $125 a barrel, the spread was nearly $21 a barrel, the highest since last October.
"This is all about Seaway," said Tom Bentz, director at BNP Paribas Prime Brokerage. "People are buying WTI and selling Brent," he said, referring to West Texas Intermediate crude, the oil most-often delivered against the Nymex contract.
Gains in crude futures also were helped by a near 200-point rise in Dow Jones Industrial Average, traders said.
Crude oil stocks at Cushing are 27% higher than they were in mid-November when plans were announced to reverse the Seaway pipeline, along oil flow from the landlocked Oklahoma hub to main Gulf Coast refining region. Stocks on April 6 were 40.6 million barrels, the highest in a year, as tanks have been filling ahead of the reversal.
Analysts surveyed by Dow Jones Newswires expect weekly oil inventory data to show nationwide crude oil stocks rose 900,000 barrels last week, while refiners lifted refinery operations by 0.7 percentage point.
The closely watched government survey from the Energy Information Administration is due to be released at 10:30 a.m. EDT Wednesday.
The data is expected to show gasoline stocks fell by 1 million barrels, while distillate stocks, comprising heating oil and diesel fuel, dropped by 300,000 barrels.
Front-month May reformulated gasoline blendstock, or RBOB, settled 1%, or 3.3 cents lower, at $3.234 a gallon, the lowest price since March 6. Brent crude, the international benchmark, heavily influences the gasoline price, as it more closely reflects what refiners pay for crude oil supplies.
May-delivery heating oil rose 1.08 cents, to settle at $3.128 a gallon.