(Corrects direction in second paragraph. For Bloomberg fair value curves, see CFVL <GO>.)
Dec. 3 (Bloomberg) -- West Texas Intermediate crude gained the most since September after TransCanada Corp. said it will begin operating the southern leg of its Keystone XL pipeline to the Gulf Coast in January.
Prices jumped to a one-month high, narrowing WTI’s discount to Brent. TransCanada plans to start deliveries Jan. 3 to Port Arthur, Texas, via the segment of the Keystone expansion project from Cushing, Oklahoma, according to a government filing yesterday. Cushing is the delivery point for WTI futures. Crude also rose as U.S. total inventories probably slid for the first time since September last week.
“With the pipeline up and running, you are going to see drops in Cushing inventories,” said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. “It drives up WTI prices far more than Brent. You are going to see a narrowing of the Brent-WTI differential.”
WTI for January delivery increased $2.22, or 2.4 percent, to settle at $96.04 a barrel on the New York Mercantile Exchange, the biggest advance since Sept. 18 and the highest settlement since Oct. 31. The volume of all futures traded was about 36 percent above the 100-day average at 3:36 p.m.
Crude extended gains after the American Petroleum Institute said U.S. inventories fell 12.4 million barrels last week. Futures advanced $2.74, or 2.9 percent, to $96.56 at 4:36 p.m. in electronic trading. The price was $96.08 before the report was released at 4:30 p.m.
Brent for January settlement gained $1.17, or 1.1 percent, to $112.62 a barrel on the London-based ICE Futures Europe exchange, the most since Sept. 13. The European benchmark’s premium over WTI narrowed to $16.58 from $17.63 yesterday.
Plans for the southern pipeline segment show it will be able to move 700,000 barrels a day of crude to Port Arthur, home to 6.1 percent of U.S. refining capacity. Motiva Enterprises LLC, Valero Energy Corp. and Total SA all operate plants there.
The proposed northern portion of Keystone XL, which would stretch from Alberta’s oil sands to Nebraska, is being held up because it requires a presidential permit. TransCanada split its original Keystone XL project after President Barack Obama rejected a prior route last year because of fears its path through Nebraska would threaten ecologically sensitive lands.
“The Brent-WTI spread is narrowing quite a bit,” said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut. “The Keystone line definitely could impact things.”
Stockpiles at Cushing climbed 25 percent to 40.6 million barrels in the seven weeks ended Nov. 22 as U.S. output reached 8.02 million a day, the most since January 1989, according to the Energy Information Administration, the Energy Department’s statistical arm.
Overall supplies fell 500,000 barrels in the week ended Nov. 29 to 390.9 million barrels, according to a Bloomberg survey before an EIA report tomorrow. They jumped 35.8 million barrels in the previous 10 weeks.
“Expectations that U.S. inventories will draw in tomorrow’s report and the word of the upcoming initiation of the Keystone pipeline to Port Arthur is strengthening WTI verses Brent,” said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy.
Supplies of distillate fuel, a category that includes diesel and heating oil, dropped by 1.5 million barrels to 109.4 million, the survey showed. That would be the least since May 2008. Gasoline stockpiles probably climbed 1.25 million barrels to 211.9 million.
Futures slid earlier after Iranian Petroleum Minister Bijan Namdar Zanganeh said the country can pump 4 million barrels a day in 2014 if sanctions limiting its exports are lifted. The Persian Gulf country last pumped 4 million barrels a day in 2008, according to Bloomberg estimates.
Iranian oil exports remain curbed by U.S. and European Union restrictions even after a preliminary accord last month with six world powers over its nuclear program. The country currently exports 1.2 million barrels a day, the minister said today in Vienna, where he will attend an OPEC meeting tomorrow.
“There’s been a lot of Iran chatter today, but it’s unlikely their production will rise by much anytime soon,” Kilduff said.
The Organization of Petroleum Exporting Countries will stick with a 30 million-barrel-a-day output limit at the meeting, oil ministers from Iraq, Algeria and Angola said today.
Implied volatility for at-the-money WTI options expiring in January was 17.9 percent, down from 19 percent yesterday, data compiled by Bloomberg showed.
Electronic trading volume on the Nymex was 716,712 contracts as of 4:37 p.m. It totaled 465,507 contracts yesterday, 17 percent below the three-month average. Open interest was 1.63 million contracts.
--With assistance from Dan Murtaugh in Houston. Editors: Margot Habiby, Richard Stubbe