Natural gas also turns down, back to lowest in nearly a decade
By Claudia Assis and Clare Hutchison, MarketWatch
SAN FRANCISCO (MarketWatch) — Crude-oil futures turned lower Wednesday after reports that the White House will reject a Canadian company’s proposal to build a pipeline from the U.S.-Canada border to the Gulf of Mexico.
Prices had spent mosf of the day a tad higher, fending off weakness from predictions of lower demand by an energy agency. A lower dollar and a positive U.S. industrial-output report provided some support.
Crude for February delivery CL2G -0.01% declined 28 cents, or 0.3%, to $100.45 a barrel in electronic trading on the New York Mercantile Exchange. It traded as low as $99.84 a barrel earlier.
An official decision on TransCanada Corp. TRP -1.75% Keystone pipeline is expected later Wednesday, but according to reports the firm‘s proposal has been rejected.
The pipeline is seen as one answer to the supply glut in Cushing, Okla., the delivery point for Nymex oil, and also as a valued way to get oil from the Canadian tar sands and oil fields on the border of Canada and the U.S. to the heart of the U.S.’s refinery industry in the Gulf.
Wednesday’s reversal “is a knee-jerk reaction to the pipeline’s news,” said Matt Smith, an oil analyst with Summit Energy in Kentucky. Once that dissipates, however, calmer heads will prevail and realize either someone else will present a pipeline proposal or TransCanada will go back to the drawing board and present a modified route, he added.
IEA report
Earlier Wednesday, investors digested the latest oil-market report from the International Energy Agency, which slashed 2012 oil-demand forecasts.
The IEA said “the likelihood of an economic slowdown, if not outright recession, in 2012” and supply risks triggered the move. The IEA cut first-quarter demand forecasts by 500,000 barrels a day and trimmed full-year demand growth expectations by 200,000 barrels a day.
Before the report was released, Commerzbank analysts said the downward revision would have little effect on prices.
“Since the [U.S. Energy Information Administration] and [Organization of the Petroleum Exporting Countries] have already slightly lowered their demand estimates, a downward revision by the IEA would no longer come as any surprise and is thus unlikely to negatively impact prices, especially given that investors are currently focusing more on the supply risks,” Commerzbank said in a note.
Among the most pressing supply issues is the tension between the West and Iran, as worries grow over that nation’s nuclear program. The European Union will decide in the near future if it will ban Iranian crude-oil imports starting in July. Tehran has responded by threatening to close the Strait of Hormuz, through which roughly one-third of world oil supplies flows, according to the IEA.
The dollar also continued to weaken on Wednesday, providing support for oil prices. The dollar index DXY -0.72% , which compares the U.S. unit with a basket of six currencies, traded at 80.660, down from 81.175 late Tuesday. Oil and other dollar-denominated commodities benefits from a lower greenback as it makes them cheaper to holders of other currencies.
The American Petroleum Institute is due to release its weekly oil-supply report on Wednesday, followed by the more closely watched U.S. Energy Information Administration report on Thursday, a day later due to the U.S.’s Martin Luther King day on Monday.
