- The Washington Times - Thursday, November 17, 2011

One day after oil prices hit $102 a barrel for the first time in four months, they fell below the century mark on Thursday.

It’s a reflection of continued investors’ concern about the European debt crisis, analysts say. Investors are afraid of a recession, and that outweighed news of a Canadian pipeline that could free up a logjam of U.S. oil.

“A lot of that is on Europe,” said PFGBest analyst Phil Flynn.

New York’s benchmark crude, West Texas Intermediate, dropped $3.77, or 3.7 percent, and closed at $98.82 per barrel.

There is growing concern that a number of European bank failures will begin to emerge. If that happens, eurozone spending would decline and energy demand would take a hit.

“You had some concerns about the ongoing European situation,” said John Felmy, chief economist at the American Petroleum Institute. “What’s the overall economic situation going to be?”

Thursday’s drop was a stark contrast from Wednesday’s jump. Oil prices have come a long way since early October when they were sitting at $75 a barrel.

Crude oil rose 3.2 percent and hit $102.59 a barrel on Wednesday. It was the first time prices broke the $100 mark since July. At one point early Thursday, before the swift decline, the Nymex contract rose further to $103.37.

This is due to two key pipeline movements.

First, the Obama administration has put off a decision on the Keystone XL pipeline, which would bring more oil to the U.S. That, in turn, caused prices to jump, said Paul Ashworth, chief U.S. economist with Capital Economics, as investors speculate there will be less oil in the market.

“It means, at least for a while, a smaller supply of oil flowing in there,” he said.

At the same time, rival Canadian pipeline company Enbridge has agreed to buy half ownership of ConocoPhillips’ Seaway crude pipeline and reverse the flow of oil out of Cushing, Okla., to the Gulf Coast.

There is a logjam there with too much oil, so this will help “alleviate” some of the pressure. That contributed to Wednesday’s increase in crude oil prices.

“We were putting more oil into those refineries than those refiners were able to refine,” Mr. Flynn explained. “That basically created a bottleneck and kept the price of oil low.”

Some have expressed concern that once refined the oil will be shipped out of the U.S. to Latin America and South America, where demand is high.

But a number of analysts disagree.

“It’s possible, but the U.S. imports half of our oil,” said Deutsche Bank analyst Adam Sieminski. “Logically, that oil will simply be refined and get used in the U.S.”

These movements in oil prices should affect gasoline prices, analysts say, because U.S. gas prices are based on the Brent crude oil benchmark. Brent crude, which is used to price oil produced in foreign countries, fell $3.42, or 3 percent, on Thursday to finish at $108.09 a barrel in London, according to the Associated Press.

Gasoline prices fell by a penny Thursday to $3.39 per gallon, according to AAA, Wright Express and Oil Price Information Service, the AP reported.

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