--WTI-Brent spread narrows for first time in 9 days
--Shift comes after Goldman advises ending trade in spread
--Nymex crude rebounds to settle at one-week high
(Updates with commentary, Cushing inventory detail)
By David Bird
Crude oil futures prices settled higher Tuesday after a volatile session in which global benchmarks shifted from their recent trajectories.
For more than a week, North Sea Brent crude oil prices--the European benchmark--have been climbing, as widening sanctions over Tehran's nuclear weapons program have caused buyers of Iranian crude in Asia and Europe to scramble to look for alternate supplies.
The buying frenzy pushed ICE Brent crude oil futures up for seven straight days, to a six-month high at Tuesday's settlement.
As Brent rose, many investors bought Brent for March delivery and sold March contracts for light, sweet crude oil on the New York Mercantile Exchange. Much of U.S. crude oil can't be easily exported and therefore can't ease supply worries of overseas buyers. The inventory of West Texas Intermediate crude oil, the U.S. benchmark, has begun building up at the landlocked Cushing, Okla. delivery point, adding to price pressure.
Tuesday, Goldman Sachs, often a major force in oil trading, recommended closing those March positions--where Brent was bought and WTI was sold--and taking profit on the price spread between the two. The spread, which had grown to over $20 a barrel, nearly twice its mid-January level, narrowed for the first time in nine days, shrinking to $17.82.
When the advice hit traders' screens, recent patterns were scrambled, high-flying Brent sold off and Nymex contracts rebounded sharply.
"It's market trading, rather than people trading on the fundamentals of the market," Carl Larry, president of Oil Outlooks and Opinions advisory firm said.
Nymex light, sweet crude for March settled $1.50 higher, at a one-week high of $98.41 a barrel, after moving in a range of $95.97 to $99.13 a barrel. The contract rose for just the second time in the past eight days but remains within the recent $94-$100 trading range. ICE Brent for March settled 30 cents higher, at $116.23 a barrel, the highest price since Aug. 2.
"We'll have to see if this a sea change or just a little more volatility," said Gene McGillian, a broker and analyst at Tradition Energy in Stamford, CT. He noted that widespread expectation for further stock builds at Cushing "could push the spread right out again."
Goldman noted in a report that the WTI-Brent spread, at more than $19 a barrel on Monday, was at its widest level since plans were announced in November to reverse the flow of the Seaway pipeline, allowing crude oil that had built up in Cushing to flow down to the main refining hub in the U.S. Gulf, where it would compete with other foreign and domestic barrels.
Market players said they expect inventories to continue to build at Cushing in coming weeks, as supplies build up ahead of the Seaway pipeline opening. Analysts said the cost of moving crude through the pipeline to the Gulf would be around $2 a barrel, a fraction of current costs of more than $7 a barrel for rail and barge movements.
In late January, Cushing inventories were at a seven-week high, but were more than 21% below year-ago levels, despite a rise of 3.5% in the past three weeks.
Goldman also repeated its expectation that despite slowing global economic growth, "oil demand will grow well in excess of production capacity growth," with spare production capacity exhausted and higher prices needed to rein in demand. The bank projects U.S. benchmark crude soaring to $123.50 in 12 months, with Brent at $127.50 a barrel at that time.
Meantime, the EIA, in its monthly short-term energy outlook Tuesday, said U.S. oil demand will fall 2.1% from a year ago, to a 14-year low of 18.69 million barrels a day in the first quarter, led by a steep drop in gasoline demand. Full-year 2012 U.S. oil use will be little changed, at 18.87 million barrels a day. EIA said global oil demand is expected to rise 1.7% in the current quarter and 1.5% for the full-year compared to 2011.
The EIA projected the U.S. benchmark crude price will average $100 a barrel this year, up $6 from 2011, and will average $106 a barrel in 2013.
Analysts will be watching U.S. oil inventory data for short-term guidance. Forecasts call for crude stocks to show a rise of 2.7 million barrels in the week ended Feb. 3, while refiners cut operations by 0.4 percentage point.
The closely watched government survey from the Energy Information Administration is due at 10:30 a.m. EST Wednesday. Gasoline stocks are expected to rise by 100,000 barrels, while distillate stocks, comprising heating oil and diesel fuel, are expected to fall by 900,000 barrels.
March-delivery heating oil futures settled 2.02 cents higher, at $3.1909 a gallon, the most since May 2. Reformulated gasoline blendstock for March delivery settled down for the first time in three days, off 0.04 cent, at $2.9275 a gallon.
More information on settlements and highs and lows for futures on Nymex
and ICE platforms can be found by searching for the following headlines:
Nymex Light Crude Oil Close
Nymex Harbor RBOB Gasoline Close
Nymex Heating Oil Close
ICE Brent Crude Oil Close
ICE Gas Oil Close
-By David Bird, Dow Jones Newswires; 212-416-2141; email@example.com