Forexpros – Crude oil futures extended gains on Tuesday, rallying to a two-week high as the New York-traded contract continued to draw support from news that a major U.S. pipeline reversal may start ahead of schedule, while Brent prices hovered close to a two-month low.
On the New York Mercantile Exchange, light sweet crude futures for delivery in June traded at USD105.22 a barrel during U.S. morning trade, rallying 1.79%.
It earlier rose by as much as 2% to trade at USD105.49 a barrel, the highest since April 3.
Meanwhile, on the ICE Futures Exchange, Brent oil futures for June delivery added 0.1% to trade at 118.78 a barrel. It earlier fell by as much as 0.5% to trade at USD117.99 a barrel, the lowest since February 15.
The spread between the Brent and crude contracts stood at USD13.56 a barrel, the narrowest differential since mid-February.
The spread between the world’s two main oil benchmarks has hit highs above USD20 in recent months. The gap between the two contracts widened to a record USD27.88 a barrel in October of last year.
The reduced spread between the two main global oil benchmarks came following news on Monday that owners of the Seaway pipeline slated to carry crude from Cushing, Oklahoma to the Gulf of Mexico had asked federal authorities to fast-forward the project by about two weeks.
Pipeline operators Enbridge and Enterprise Products Partners said they plan to switch the flow on Seaway about May 17, according to a filing with the Federal Energy Regulatory Commission.
If approved, the pipeline will start operating two weeks ahead of the original June 1 start date, helping to ease a supply gut in the U.S. Midwest by pumping it to refineries on the Gulf Coast.
Such expectations were “a reminder that the two crude-oil benchmarks are about to become more closely connected, applying downward pressure on the Brent-WTI spread,” Citigroup analysts said in a report Monday.
Wall Street investment bank Goldman Sachs said in a report on March 27 that the Brent-WTI spread is set to narrow with the reversal of the Seaway pipeline in June.
Meanwhile, traders continued to asses the strength of the global economy and the implications on world energy demand.
In the U.S., official data showed that industrial production was unexpectedly flat for the second consecutive month in March, confounding expectations for a 0.3% increase.
The report came after official data showed that the number of building permits issued in the U.S. increased unexpectedly in March, rising to the highest level since September 2008, while housing starts dropped significantly, painting a mixed picture of the U.S. housing sector.
The number of building permits issued in March rose 4.5% to a seasonally adjusted 0.747 million, confounding expectations for a modest decline of 0.7% to 0.710 million.
But U.S. housing starts fell to the lowest level since October, dropping 5.8% to a seasonally adjusted 0.654 million from a revised 0.694 million units in February. Economists had forecast housing starts to rise 1.0% in March to 0.705 million units.
Elsewhere, fears over Spain’s debt woes eased slightly after an auction of short-term Spanish government debt met with solid investor demand, while better-than-expected data on German economic sentiment also boosted risk appetite.
Oil traders were looking forward to a speech from U.S. President Barack Obama later in the day. Obama will deliver a statement announcing a plan to crack down on what the White House calls manipulation in oil markets.
Energy policy has emerged as a major election-year issue between Obama and Republicans.
Market participants were also awaiting fresh weekly information on U.S. stockpiles of crude and refined products to gauge the strength of oil demand in the world’s largest oil consumer.
The American Petroleum Institute will release its inventories report later in the day, while Wednesday’s government report could show crude stockpiles rose by 1.6 million barrels last week to the highest level since June, underscoring fears over a slowdown in oil demand from the U.S.
The U.S. is the world’s biggest oil-consuming country, responsible for almost 22% of global oil demand.
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