West Texas Intermediate rebounded from its lowest closing level in a week amid speculation the start of a new pipeline will deplete inventories at Cushing in Oklahoma, the delivery point for the benchmark grade.
Futures advanced as much as 0.5 percent in New York. TransCanada Corp.’s (NYSE: TRP) Keystone XL link, which began delivering crude from Cushing to Texas last month, will reduce “bloated” stockpiles at the storage hub to as little as 20 million barrels by April, according to Citigroup Inc. (NYSE: C).
That would be about half current levels, based on Energy Department data. WTI declined the most in almost a month Monday as a U.S. manufacturing gauge dropped more than forecast.
“WTI is rebounding from [Monday’s] loss and Cushing expectations,” said Andrey Kryuchenkov, an analyst at VTB Capital in London. “Disappointing U.S. manufacturing dragged more on WTI prices [Monday].”
WTI for March delivery advanced as much as 51 cents to $96.94 a barrel in electronic trading on the New York Mercantile Exchange and was at $96.86 as of 9:56 a.m. London time.
The contract fell $1.06 to $96.43 Monday, the lowest close since Jan. 27. Prices are down 1.6 percent this year.
Brent for March settlement slid 11 cents to $105.93 a barrel on the London-based ICE Futures Europe exchange. It settled at $106.04 Monday, the lowest since Nov. 12.
The European benchmark crude was at a premium of $9.09 to WTI on the ICE exchange, compared with $9.61 Monday.
The southern leg of Keystone XL began moving crude to the Gulf Coast of Texas from Cushing last month.
The pipeline was initially flowing at 288,000 barrels a day and will increase over the course of the year toward its 700,000-barrel capacity, executives said in a Jan. 22 news conference at the company’s headquarters in Calgary.
“Volumes could be in the 400,000 barrel-a-day range soon, barring delays and problems,” analysts at Citigroup including Seth Kleinman in London wrote in a report Monday. “Cushing can begin to draw down to the 20 to 30 million barrel level by April as the Keystone Gulf Coast pipeline adds significant outflow capacity to the bloated storage hub.”
U.S. manufacturing expanded in January at the slowest pace in eight months, missing the most pessimistic projection in a separate Bloomberg survey of economists.
The Institute for Supply Management’s factory index decreased to 51.3, down from 56.5 for December, said the Tempe, Ariz.-based group.
“The data out of the U.S. is showing things aren’t as good as expected when it comes to the economy,” David Lennox, a resource analyst at Fat Prophets in Sydney, said by phone Monday. “That’s going to have an impact on the oil price because the U.S. is a big consumer.”
Crude stockpiles probably gained by 2.25 million barrels last week, a Bloomberg News survey of analysts showed before a report from the Energy Information Administration tomorrow.
Gasoline stockpiles rose by 1.35 million barrels in the week ended Jan. 31, according to the median estimate of 10 analysts surveyed before the EIA report Wednesday.
Distillate inventories, including heating oil and diesel, are predicted to have declined by 2.5 million barrels.
WTI has technical support along its 50-day moving average of about $96 a barrel, data compiled by Bloomberg show. Futures halted an intraday drop near this level Monday. Buy orders tend to be clustered around chart-support levels.