WTI Slides From Six-Week High; Exxon Shuts Crude Pipeline

By Jacob Adelman & Winnie Zhu 

West Texas Intermediate crude slid from the highest close in six weeks, snapping its longest rally this year. Exxon Mobil Corp. (XOM) shut a pipeline that carries oil to the U.S. Gulf Coast.

Futures dropped as much as 0.8 percent after five days of gains through March 28 took last quarter’s advance to 5.9 percent. The Pegasus pipeline, shut March 29 after a leak in Arkansas, will need to be excavated as Exxon determines what caused the breach, a spokeswoman said. WTI prices surged last week as U.S. economic growth beat forecasts, sending U.S. equities to a record March 28.

“U.S. crude inventories are at a fairly high level right now, and the Pegasus pipeline shutdown will further increase pressure,” Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai, said in a phone interview. “Prices will stabilize or weaken in the longer term as demand declines gradually.”

WTI for May delivery slipped as much as 81 cents to $96.42 a barrel on the New York Mercantile Exchange and was at $96.55 at 7:53 a.m. in New York. It closed at $97.23 on March 28, the highest settlement since Feb. 14, capping the longest rally since Dec. 20.

Prices increased 3.8 percent last week and 5.6 percent in March. The market was closed March 29 for Good Friday. The volume of all futures traded was 22 percent below the 100-day average for the time of day.

Exxon Pegasus

Brent for May settlement lost 24 cents, or 0.2 percent, to $109.78 a barrel on the London-based ICE Futures Europe exchange. Prices gained 2.2 percent last week. They fell 1.2 percent in March and 1 percent in the first quarter. Volumes for all contracts were 76 percent below normal. The European grade’s premium to WTI widened 59 cents to $13.38 a barrel after settling March 28 at $12.79, the narrowest since July.

Exxon’s Pegasus system is a 20-inch diameter pipeline with a capacity of about 96,000 barrels a day running from Patoka, Illinois, to Nederland, Texas. The company expanded the line by 30,000 barrels a day in 2009 to carry more Canadian crude from the Midwest to Gulf Coast refineries, it said in a June 17, 2009, statement. It was transporting Wabasca Heavy Crude from Western Canada when it leaked, Kimberly Brasington, a spokeswoman for the company, said in an e-mail.

The shutdown means less crude can be transported from the U.S. Midwest, potentially exacerbating a glut of oil coming from Canada to the Midwest.

Shell Pipeline

U.S stockpiles rose 0.9 percent in the week ended March 22 to the highest since June and stood 12 percent above the five- year average. Inventories at Cushing, Oklahoma, the delivery point for WTI futures, increased 0.9 percent and were 54 percent higher than the average.

Royal Dutch Shell Plc (RDSA) last week shut a 170,000 barrel-a-day pipeline that moves Gulf of Mexico crude to Houma, Louisiana, after the pipe leaked in Terrebonne Bay. Shell shut the 16-inch pipeline, which starts on Caillou Island, at about 5 p.m., March 23 after a light oil sheen was observed near a pump station.

Money managers boosted net-long positions, or wagers on higher U.S. prices, by 16 percent in the week ended March 26, according to the Commodity Futures Trading Commission’s March 29 Commitments of Traders report. It was the largest gain since the seven days ended Dec. 18.

“The crude oil market doesn’t have any specific fundamental factors, so it depends on the U.S. equity market,” said Tetsu Emori, a fund manager at Astmax Investment Management Inc. inTokyo. “Some correction will be coming up next week in the equity market. Crude oil should track such movement.”

Equities surged to a record last week after Commerce Department data showed U.S. gross domestic product rose at a 0.4 percent annual rate, up from a prior estimate of 0.1 percent.

To contact the reporters on this story: Jacob Adelman in Tokyo at jadelman1@bloomberg.net; Winnie Zhu in Singapore at wzhu4@bloomberg.net

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