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Oil rebounds as inventories at US hub decline to one-month low

Oil rebounded as an Energy Information Administration report showed a drop in inventories at Cushing, Okla., the delivery point for West Texas Intermediate crude traded in New York.

Futures rose as much as 0.4 percent after stockpiles declined 315,000 barrels at the hub last week to 51.4 million, a one-month low. Nationwide supplies gained 2.62 million barrels to 371.7 million. WTI’s discount to Brent oil widened to the most this year earlier on concern that limits on the Seaway pipeline trimming flows would bolster a glut at Cushing.

“It looks like a lot of buyers are using railcars to avoid the bottleneck at Cushing,” said Richard Soultanian, co- president of NUS Consulting Group, a Park Ridge, N.J.-based energy procurement adviser. “Anyone that can avoid Cushing is going to.”

Crude oil for March delivery slipped 2 cents to $96.62 a barrel on the New York Mercantile Exchange. The contract traded at $95.68 before the release of the report at 10:30 a.m. in Washington. Trading was 72 percent above the 100-day average for this time of day. Futures are up 5.2 percent this year.

Brent oil for March settlement gained 11 cents to $116.63 a barrel on the London-based ICE Futures Europe exchange. Brent volume was 33 percent above the 100-day average.

The European benchmark grade traded at as much as a $20.87- a-barrel premium to WTI, the widest spread on an intraday basis since Dec. 21. The gap has grown since Enterprise Products Partners LP (NYSE: EPD) said Jan. 31 that capacity on the Seaway pipeline to the Gulf Coast from Cushing will be limited until late 2013.

Increasing output in the United States and Canada and the lack of pipeline capacity bolstered stockpiles at Cushing to a record 51.9 million barrels in the week ended Jan. 11.

“U.S. inventories are extremely robust,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston.

PBF Energy Inc. (NYSE: PBF) said on Feb. 4 that it expects to receive its first rail shipment from North Dakota at its Delaware refinery. PBF finished construction on the second train unloading terminal at its 182,800-barrel-a-day Delaware City refinery, the company said in a statement. PBF expects to unload its first unit train of Bakken oil this week, with 17 more scheduled to arrive in the next two weeks.

The oil-supply gain left U.S. stockpiles at the highest level since the week ended Dec. 7, the report showed. Crude production advanced 4,000 barrels a day to 7 million in the week ended Feb. 1, the EIA, the Energy Department’s statistical arm, said Wednesday. Imports dropped 499,000 barrels a day to 7.57 million last week, the second lowest level in the past year.

“WTI should continue to trade at a discount to Brent for a while because we’re producing a heck of a lot more oil here, global demand is rising and we’re using less in the U.S.,” Soultanian said.

TransCanada Corp. (NYSE: TRP) Chief Executive Officer Russ Girling expects approval “very soon” for the $5.3 billion portion of the Keystone XL oil pipeline that crosses the U.S.-Canada border. Keystone XL would deliver 830,000 barrels a day from Canada and North Dakota shale fields to the Gulf Coast.

Magellan Midstream Partners LP’s (NYSE: MMP) Longhorn pipeline reversal expects to begin moving 75,000 barrels of crude a day late in the first quarter or early in the second quarter, increasing to 225,000 by mid-2013, the company said Feb. 4.

“The spread between WTI and Brent should widen until we get additional pipeline capacity later this year,” Wise said. “Pipelines won’t have a material impact on the supply situation for a while. The Seaway pipeline won’t be up to full capacity for months, Magellan’s Longhorn will be up to 225,000 barrels a day during the second half of the year and the Keystone should be running by year’s end.”

The United States is tightening sanctions on Iran with measures blocking the exporter from repatriating oil payments in dollars, euros and other hard currencies. The new restrictions are aimed at stopping that country’s nuclear program.

Crude buyers such as China, Japan and India must use their own currencies to pay Iran and keep the payments in escrow accounts, or else risk expulsion from the U.S. banking system. Iran will be able to use the funds only for locally sourced goods and services, in what will amount to barter arrangements.

WTI’s rebound in New York stalled Tuesday along the bottom of an uptrend channel that was breached the previous day, signaling technical resistance, where sell orders may be clustered. This indicator is around $97.50 a barrel as of Wednesday, according to data compiled by Bloomberg.

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