January 18th, 2012

Crude ol futures  in New York as the Obama administration denied a permit for TransCanada Corp. (TRP)’s Keystone XL pipeline, which would have carried crude to U.S. Gulf Coast refineries from Alberta’s oil sands.

West Texas Intermediate oil, the U.S. benchmark, retreated after two people familiar with the matter said the rejection was imminent. The announcement came after the close of floor trading. Oil climbed earlier after the Federal Reserve figures showed that U.S. industrial output rose 0.4 percent in December.

“Inventories are going to increase because of this,” said Stephen Schork, president of the Schork Group in Villanova, Pennsylvania. “There was a bet that WTI would move closer to the world price this year” and the Keystone rejection will end that prospect, he said.

Crude oil futures uary delivery fell 12 cents to settle at $100.59 a barrel on the New York Mercantile Exchange. It dropped to $99.84 from $100.98 on the Keystone news before rebounding.

Crude oil futures rose from the settlement after the American Petroleum Institute reported that oil inventories declined 4.81 million barrels to 330.1 million last week. February crude increased 33 cents, or 0.3 percent, to $101.04 a barrel in electronic trading at 4:32 p.m.

Brent oil for March settlement declined 87 cents, or 0.8 percent, to end the session at $110.66 a barrel on the London- based ICE Futures Europe exchange. The European contract’s premium to March crude on the Nymex narrowed 76 cents to $9.90 a barrel at the close of trading. That’s down from a record high of $27.88 on Oct. 14.
Crude Oil Futures: Supply Report

An Energy Department report tomorrow will probably show that U.S. crude inventories grew 3 million barrels to 337.6 million in the seven days ended Jan. 13, according to the median of 12 analyst estimates in a Bloomberg News survey. A gain would be the fourth in a row.

The administration will let TransCanada submit a new application for an alternate route that avoids an environmentally sensitive area in Nebraska. The 1,661-mile (2,673-kilometer) pipeline would have carried 700,000 barrels of crude a day.

In November the administration delayed approving the project until after the 2012 election, saying it wanted to study an alternate route. Last month, Congress set a 60-day deadline for the administration to decide whether to issue a permit.

“We’ll be back to the old status quo of oil,” said Rich Ilczyszyn, founder and chief market strategist at Iitrader.com in Chicago. “Plenty of oil coming into the Midwest and there is no way to get it anywhere else. Locally it will be very bearish for WTI.”

Crude Oil: Regional Stockpiles

Inventories in Padd 2, which includes the Midwest, climbed to a record 107.3 million barrels on April 1. The stockpiles fell to 92.7 million in the week ended Jan. 6, according to the Energy Department.

Gasoline inventories climbed 2.35 million barrels to 226.2 million last week, the survey showed. An gain of that size would leave supplies at the highest level since March. Stockpiles of distillate fuel, a category that includes heating oil and diesel, rose 1.38 million barrels to 148.9 million barrels.

The department is scheduled to release its weekly report at 11 a.m. tomorrow in Washington because the government and financial markets were closed Jan. 16 for the Martin Luther King Jr. holiday.

Crude oil futures rose earlier on the increase of U.S. industrial output and rising tension between Iran and Saudi Arabia, the Organization of Petroleum Exporting Countries’ two leading oil producing countries.

Crude oil: U.S. Economy

“The numbers from the U.S. continue to look a little better than expected,” said David Greely, head of energy research at Goldman Sachs Group Inc. in New York. “We’re still looking for prices to rise this year.”

The International Energy Agency reduced its global oil consumption forecast in a monthly report today. Worldwide oil demand will increase by 1.1 million barrels a day this year, or 200,000 less than previously estimated, to 90 million barrels, the Paris-based IEA predicted.

“There is a $10-to-$15 Iran premium already built into the oil process,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The IEA’s cut of its demand doesn’t paint a promising picture for the market.”

BP Plc cut its estimate of global energy demand growth through 2030 to 1.6 percent annually from 1.7 percent a year ago, according to a statement on its website. Consumption will probably grow 40 percent in the next two decades, Chief Executive Officer Robert Dudley said in London today.

Crude Oil: Global Growth

The World Bank cut its global growth forecast by the most in three years, saying a recession in the euro region may exacerbate a slowdown in emerging markets.

The global economy will expand 2.5 percent this year, down from a June estimate of 3.6 percent, according to the World Bank in Washington. Turmoil in Europe has the potential to trigger a financial crisis reminiscent of 2008, it said.

Crude oil volume in electronic trading on the Nymex was 653,909 contracts as of 4:30 p.m. in New York. Volume totaled 806,747 yesterday, the highest since Dec. 13 and 34 percent above the three-month average. Open interest was 1.38 million contracts.

- Mark Shenk in New York at Bloomberg.