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crude oil futures jumped above $100 a barrel for the first time since
July as the relationship between the world’s two most important oil
contracts witnessed one of the largest daily swings on record.
West Texas Intermediate oil, the US benchmark, jumped as much as
$2.69 a barrel to a high of $102.06, while Brent, its European
counterpart, fell as much as $2.
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Lease sale offers hope for Gulf of MexicoThe move was triggered by news that Enbridge, the pipeline operator, planned to reverse a key pipeline, enabling it to ease the supply glut in the US Midwest that has weighed on the landlocked WTI contract.
Enbridge said that it had bought ConocoPhillips’ 50 per cent stake in the Seaway pipeline
for $1.15bn and planned to reverse its flow, allowing it to move crude
from Cushing, Oklahoma, the delivery point of the WTI contract, to the
US Gulf Coast.
A build-up of inventories in and around Cushing has
caused the prices of WTI and Brent, the two oil benchmarks, to diverge
sharply this year. Last month, WTI traded at a record $28 discount to
Brent. But the spread has collapsed by almost $20 in the past month, and
on Wednesday traded at its tightest in seven months at $8.33.
Betting on the spread has become a popular trade among hedge funds
and trading houses, with some analysts arguing that the glut around
Cushing could cause the spread to blow out to more than $40.
The reversal of the Seaway pipeline will go some way to relieving the
bottleneck. The pipeline could pump 150,000 barrels a day by the second
quarter of 2012, Enbridge said, ramping up to 400,000 b/d by early
2013.
Patrick Daniel, Enbridge chief executive, said the reversal would
“provide capacity to move secure, reliable supply to Texas Gulf Coast
refineries, offsetting supplies of imported crude”.
It will also relieve pressure on TransCanada’s
Keystone XL pipeline project, which would ship crude from Canada to the
US Gulf Coast but has been delayed by environmental concerns.
Lawrence Eagles, head of oil research at JPMorgan in New York, said:
“The pipeline reversal is unlikely to change the international crude
price, but it has the potential to narrow Brent/WTI at a more aggressive
rate.”