Oil Futures Dip on Continued Demand Concerns
NEW YORK--Oil prices declined Wednesday as a drop in U.S. supply failed to erase traders' fears about sluggish demand.
U.S. crude-oil supplies fell last week for the first time in 11 weeks, the U.S. Energy Information Administration said, upending analyst expectations. But traders wrote off the drop as a one-week aberration--a closure of the Houston Ship Channel between March 22 and March 25 limited imports of crude oil and required refiners to draw more supplies from storage.
Inventories likely will rise again next week, said Andy Lipow, president of Lipow Oil Associates in Houston. Demand for crude oil typically falls in March as refineries shut down units for seasonal maintenance.
Light, sweet crude for May delivery settled down 0.1% at $99.62 a barrel on the New York Mercantile Exchange. Brent crude on ICE Futures Europe fell 0.8% to $104.79 a barrel, a near five-month low, on concerns that a blockade on Libyan export terminals could end, adding supplies to the global market.
The U.S. has struggled as oil production in Texas, North Dakota and elsewhere has surged faster than pipelines could be built to move the oil to refineries. Storage facilities started filling up in Cushing, Okla., and the bottlenecked U.S. oil has cost less in recent years than the international oil benchmark.
A long-anticipated pipeline connecting Cushing to the Gulf Coast opened in January and has cleared the glut. Cushing stocks have fallen for nine straight weeks and hit their lowest level since 2009 last week, the Energy Information Administration said.
However, fears remain that even new pipelines can't ease an eventual domestic oversupply of crude oil. Now that the Cushing bottleneck has opened up, other kinks in the nation's energy infrastructure are coming into focus and distorting regional prices.
For example, when two large refineries in West Texas closed units for maintenance at the same time last month, the amount of oil stored in the region surged because too few pipelines were available to carry it to other markets.
The benchmark price of oil from Midland, Texas, fell as much as $17.20 a barrel below the price of the same oil in Cushing in mid-March, according to data from pricing service Platts. Midland prices were still $11 a barrel below Cushing prices Tuesday, according to Platts.
Typically, Midland prices are just $1.50 a barrel cheaper than Cushing prices, said Tom Kloza, chief oil analyst at GasBuddy.com and co-founder of Oil Price Information Service. Some West Texas producers have sold oil at current prices for delivery in June, indicating that they don't think the price will improve during the second quarter, he said.
"If you don't have the local demand, then all of a sudden, you've got an embarrassment of riches and no place to take the crude oil," Mr. Kloza said.
Reformulated gasoline blendstock, or RBOB, for May delivery settled down 0.1% at $2.8668 a gallon. May diesel fell 0.7% to $2.8666 a gallon, its lowest settlement since Nov. 12, due to an unexpected rise in distillate stocks.