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Based on estimates that refiners in the United States increased their use of crude oil, and signs of an economic recovery in Europe, oil is now trading close to its highest level in almost four months.
Bloomberg reported on Tuesday that futures for West Texas Intermediate, a grade of crude oil used as a benchmark in oil pricing, rose 0.7 percent, the WTI’s third consecutive daily increase. While the Energy Department’s report is not due until Wednesday, a survey conducted by the publication showed that refineries increased their average run rate last week by 0.2 percentage points to 90.6 percent.
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As an expanded U.S. oil pipeline appears to be relieving a domestic oil-supply glut, the separation between the world’s two most-important crude oil benchmarks, the U.S.-traded West Texas Intermediate crude oil and Europe’s Brent crude, shrank the most in more than three months. The price spread narrowed by 6.4 percent in the past week, after pipeline operators Enterprise Products Partners (NYSE:EPD) and Enbridge (NYSE:EEP) announced that 400,000 barrels of oil per day will flow through their Seaway Pipeline by Friday, more than doubling the line’s capacity. The 500-mile pipeline transports oil from Cushing, Oklahoma to Gulf Coast Refineries.
Investors believe that the pipeline will decrease the record oil stockpiles in Cushing, which will raise the price of U.S. crude against its European equivalent, according to The Wall Street Journal. The U.S. Energy Department said inventories rose to an all-time high of 49.8 million barrels last week.
For most of their history, the two benchmark oil contracts have traded within a few dollars of each other. However, high production in North Dakota and other landlocked regions since 2010 has boosted reserves. The last time WTI, which trades on the New York Mercantile Exchange, closed higher than Brent was in August 2010, and the spread has expanded subsequently. As the Journal noted, some traders believe that the Seaway Pipeline’s expansion will continue to shrink the gap.
Light, sweet crude for February delivery closed 0.1 percent higher at 93.19 per barrel on the New York Mercantile Exchange, while Brent crude on the ICE futures exchange rose 9 cents to $111.40 per barrel.
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