Oil Pares Gains on Speculation U.S. Has Adequate Supply After Pipe Outage

Oil Pares Gains on Speculation U.S. Oil gave up earlier gains to trade near $89 a barrel on speculation the closure of an Alaskan crude pipeline will be short-lived and the U.S. has sufficient stockpiles to make up for reduced supply.

Futures climbed 1.4 percent yesterday after the Trans- Alaska Pipeline System, which carries about 15 percent of U.S. crude output, was shut following a Jan. 8 leak, forcing companies to suspend most production from the North Slope area. U.S. West Coast refiners said they are experiencing little or no impact after the closure. Brent’s premium to West Texas oil futures was the widest in almost two years yesterday.

“The pipeline leak encouraged refiners to buy European or Middle East benchmarked crudes, that’s why WTI wasn’t up that much,” said Serene Lim, a commodity analyst at Australia & New Zealand Banking Group Ltd in Singapore. “The reaction to the pipeline leak was quite muted. It really showed the weakness in the energy complex.”

The February contract traded at $89.40 a barrel, up 15 cents, in electronic trading on the New York Mercantile Exchange at 3:36 p.m. in Singapore. It earlier rose as much as 0.5 percent. Prices are up 8.4 percent from a year ago.

Crude jumped the most in a week yesterday, trading as high as $89.98, following the closure of the 800-mile (1,300- kilometer) pipeline network that starts in Prudhoe Bay on the North Slope and runs to Valdez, the northernmost ice-free port in North America.

‘Minor Leak’

The partnership operating the line plans to try to return it to service this week, according to a person familiar with the plans who declined to be identified because the information isn’t public. Alyeska Pipeline Service Co. is “not going to speculate” on when the pipeline may be able to reopen, Katie Pesznecker, a spokeswoman, said by telephone.

Alyeska is starting “preparatory work” to drain the pipes in the area of the discharge, seal it and build an alternative route, the Alaska Department of Environmental Conservation said in a situation report released late yesterday on its website.

“There has been some concern that because of the cold temperatures in the region and the fact that the leak occurred in a section of pipe encased in concrete, repairs may take longer,” Goldman Sachs Group Inc. wrote in a report dated Jan. 10. “The most recent reports, however, suggest that plans are being made to bypass the leak area, which could enable more expedited restart of the pipeline.”

Chevron Corp., which owns 1.4 percent of the Trans-Alaska system and takes crude in Valdez for use at its Richmond, California, refinery, said there were “no issues with crude-oil supply,” at the port.

‘Minimal Impact’

“We understand there are millions of barrels of oil in storage at Valdez so crude is still being loaded and shipped,” Mickey Driver, a spokesman for the company, said in an e-mail.

Tesoro Corp., which will load two cargoes this week from inventories at Valdez, will be “minimally impacted” in the short term, Mike Marcy, a company spokesman, said in an e-mail yesterday.

Valero Energy Corp.’s California refineries aren’t affected, Bill Day, a spokesman for Valero, said in an e-mail.

Production from North Slope Oil fields has been reduced to 5 percent of normal output. Supplies fell to 46,238 barrels Jan. 9, according to the Alaska Department of Revenue. The pipeline system transported an average 642,261 barrels a day last month, according to Alyeska’s website.

U.S. crude stockpiles were 335.3 million barrels in the week ended Dec. 31, according to the Energy Department. That is 6.4 percent higher than the average for the same period in the 5 years from 2005 to 2009, according to Bloomberg calculations. They are forecast to have declined by 1.4 million last week, the sixth weekly drop, according to a Bloomberg News survey before a report tomorrow.

Brent Premium

Brent crude for February settlement traded at $95.55 a barrel, down 15 cents, on the London-based ICE Futures Europe exchange. It settled yesterday at $95.70, the highest since Sept. 30, 2008.

Brent’s premium to West Texas oil futures traded in New York climbed to $6.45 a barrel yesterday, the most since February 2009, according to data compiled by Bloomberg. This spread narrowed to $6.16 today.

The Energy Department report will probably show U.S. gasoline supplies increased 2.5 million barrels from 218.1 million barrels last week, according to the median of nine analyst estimates in a Bloomberg News survey.

The report will probably show stockpiles of distillate fuel, a category that includes heating oil and diesel, rose 1 million barrels from 162.1 million the previous week, the survey showed.

Source: Bloomberg