SAN FRANCISCO (MarketWatch) — Oil futures closed above $104 a barrel Wednesday, rebounding from a three-session decline, after a report that construction of the southern leg of TransCanada’s Keystone pipeline will be completed this month, potentially alleviating a glut of oil at nation’s delivery hub.
Oil also found support from bets that weaker-than-expected growth in U.S. private-sector jobs will prompt the Federal Reserve to delay a potential pullback in its monetary-stimulus program. And traders digested weekly data that showed a climb in U.S. crude and gasoline supplies along with a decline in distillate supplies.
Crude oil for November delivery jumped $2.06, or 2%, to settle at $104.10 a barrel on the New York Mercantile Exchange. It tapped an intraday high of $104.23 Wednesday, after tallying a three-session loss of about 1%.
Prices, tracking the most-active contracts, settled at their highest level since Sept. 20, after closing Tuesday at their lowest level since early July. Wednesday’s gain was only the second in 10 trading sessions.
Gains in prices for Brent crude on ICE Futures Wednesday, however, weren’t quite as strong.
November Brent crude rose $1.25, or 1.2%, to $109.19 a barrel.
The across-the-board bearish U.S. supply data, weak demand and weak private-sector job numbers spell out lower prices for oil in the days and weeks to come, said Tariq Zahir, managing member at Tyche Capital Advisors.
But right after the government supply report came out, he said, news broke on TransCanada Corp.’s Keystone pipeline.
The company expects to complete construction and start commissioning the southern portion of its Keystone pipeline by the end of October, according to Bloomberg News, which cited an interview with Les Cherwenuk, project director for TransCanada.
TransCanada released a media statement late Wednesday to confirm that is about 95% complete with construction of the Gulf Coast pipeline and that major construction on it is expected to be complete by the end of this month.
The completion of that portion of the Keystone pipeline would bring oil from delivery hub Cushing, Okla. down to the Gulf Coast and would continue to reduce levels in Cushing, said Zahir. The pipeline had been plagued by delays.
“This is narrowing the Brent vs. [West Texas Intermediate crude] spread and we feel traders may be putting on this spread to contract further in the weeks to come,” Zahir said. “The result of this is buying in WTI and selling in Brent which we fell is the sole reason why we are seeing a rally today after all the bearish fundamental numbers came out.”
Even so, Zahir said the rally is likely to be short lived, with Nymex prices falling back below $102 in the days to come.
Construction of the 700,000 barrel-a-day pipeline to the Texas Gulf Coast from Cushing is split into three sections, with the middle section finished and the southern section expected to be completed in the next week, Cherwenuk said, according to Bloomberg.
TransCanada, meanwhile, continues to wait for the go-ahead from the U.S. State Department for the proposed Keystone XL expansion from Canada to Nebraska.
Crude supplies up
Meanwhile, oil prices saw little pressure from the latest government update on petroleum supplies.
On Wednesday, the U.S. Energy Information Administration reported that crude stockpiles for the week ended Sept. 27 rose 5.5 million barrels. That’s much bigger than the 2.4 million-barrel rise expected by analysts polled by Platts.
Gasoline supplies also rose 3.5 million barrels, while distillate stockpiles were down 1.7 million barrels, the EIA said. Gasoline stockpiles were expected to fall 1.4 million barrels, while forecasts called for a decline of 1.8 million barrels for distillates.
“The market had priced in a bearish report already,” said Phil Flynn, senior market analyst at Price Futures Group.
Late Tuesday, the American Petroleum Institute said crude supplies rose by 4.55 million barrels last week. It also reported that gasoline stockpiles climbed 3.3 million barrels while distillate supplies fell 1.6 million barrels.
Against that backdrop, heating oil for November delivery closed at $2.99 a gallon, up almost 4 cents, or 1.3%, while November gasoline added nearly 2 cents, or 0.7%, at $2.63 a gallon.
The oil market has “breached the oversold threshold over the past week or so,” said John Macaluso, research analyst at Tyche Capital Advisors. But “we do believe that any rally in crude oil will be short lived. The much weaker-than-expected job numbers joined with with the across-the-board bearish EIA data gives us reason to believe that any rally should be sold into.”
Private-sector employment picked up only slightly in September, as employers added 166,000 jobs, missing estimates, Automatic Data Processing Inc. reported Wednesday. Economists polled by MarketWatch had expected a September gain of 180,000. Originally the August increase was estimated at 176,000, but ADP on Wednesday revised that gain to 159,000.
Over the three months through September, the economy added an average of 162,000 private jobs per month, down from 220,000 at the start of the year, according to ADP.
The bad ADP means tapering may be off the table for now, said Price Futures’ Flynn. “Oil is rallying on stimulus hopes.”
The central bank’s next monetary-policy meeting will be held on Oct. 29-30. The Fed had been mostly expected to begin tapering its stimulus program at its meeting in September, but didn’t. The stimulus program has been seen as a support for oil demand.
Oil traders continued to monitor developments on day two of the U.S. government shutdown after U.S. lawmakers failed to agree on funding for the fiscal year. Debt woes are also a major concern as the nation’s debt limit is set to be reached later this month.
Also on Nymex Wednesday, natural gas for November delivery fell by nearly 7 cents, or 1.9%, to $3.54 per million British thermal units after tacking on 1.4% in the previous session. The EIA will report its weekly data on natural-gas supplies on Thursday. Analysts at Prestige Economics expect to see an increase of 98 billion cubic feet.
