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Crude oil prices drops 1.5% on pipeline problems, IMF caution on economy

January 23, 20133:53 PM BOE Report Staff

CP

 

The price of crude fell by the biggest amount of the year on Wednesday on reports that the amount of oil moving through a key pipeline to the Gulf Coast had been cut in half.

Benchmark West Texas Intermediate crude dropped $1.45, or 1.5 per cent, to finish at US$95.23 per barrel in trading on the New York Mercantile Exchange, the first decline of more than one per cent since Dec. 21.

Even before the price sank in the afternoon, traders were questioning whether recent gains in oil had run their course. As of Tuesday’s close, the price of oil had risen more than $10 a barrel since Dec. 13.

One catalyst for the recent price increase has been the apparent strengthening of the global economy. But the International Monetary Fund dampened that optimism when it projected only modest global economic growth in 2013 while warning that “there remain considerable challenges ahead.’

Some oil analysts raised the caution flag as well.

`The approximate 12 per cent crude advance extending back to early December has priced in a very optimistic global economic view,’ Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, said in a note to clients.

The price of oil began to fall in the early afternoon after reports surfaced that the Seaway pipeline, which takes crude from Cushing, Okla., to the Gulf Coast, was constrained and could only work at about half its 400,000 barrel-per-day capacity, according to Andrew Lebow, an analyst at Jefferies Bache. That will likely mean growing supplies at Cushing, the trading hub for U.S. benchmark oil, and lower prices.

`There’s a logjam down there,’ Lebow said. `Inventories have the potential to build further and they are already at record highs.’

Analysts were already forecasting that the U.S. government would report a two-million-barrel increase in oil supplies in its weekly update Thursday, according to Platts, a division of McGraw-Hill.

Brent crude, used to price international varieties of oil, rose 38 cents to end at US$112.80 a barrel on the ICE Futures exchange in London.

In other energy futures trading on Nymex, natural gas was flat at US$3.55 per 1,000 cubic feet, wholesale gasoline was unchanged at US$2.83 a U.S. gallon (3.79 litres) and heating oil rose one cent to US$3.08 a gallon.

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