Oil declined the most this year Wednesday on reports that the amount of oil moving through a key pipeline to the Gulf Coast had been cut in half.
Benchmark U.S. crude dropped $1.45, or 1.5 percent, to finish at $95.23 per barrel, the first decline of more than one percent since Dec. 21. Brent crude, used to price international varieties of oil, rose 38 cents to end at $112.80 per barrel on the ICE Futures exchange in London.
Even before the price sank in the afternoon, traders were questioning whether recent gains in oil had run their course. As of Tuesday's close, the price of oil had risen more than $10 a barrel since Dec. 13.
One catalyst for the recent price increase has been the apparent strengthening of the global economy. But the International Monetary Fund dampened that optimism when it projected only modest global economic growth in 2013, while warning that "there remain considerable challenges ahead."
Some oil analysts raised the caution flag as well.
"The approximate 12 percent crude advance extending back to early December has priced in a very optimistic global economic view," said Jim Ritterbusch, president of energy consultancy Ritterbusch and Associates, in a note to clients.
The price of oil began to fall in the early afternoon after reports surfaced that the Seaway pipeline, which takes crude from Cushing, Okla., to the Gulf Coast, was constrained and could only work at about half its 400,000 barrel-per-day capacity, according to Andrew Lebow, an analyst at Jefferies Bache. That will likely mean growing supplies at Cushing, the trading hub for U.S. benchmark oil, and lower prices.
"There's a logjam down there," Lebow said. "Inventories have the potential to build further and they are already at record highs."
Analysts were already forecasting that the U.S. government would report a 2 million-barrel increase in oil supplies in its weekly update Thursday, according to Platts, a division of McGraw-Hill.
U.S. drivers won't mind if oil prices level off or fall. The average price for a gallon of gas has gone up nearly 10 cents since Dec. 21. But the increase so far in January is just 2 cents a gallon. Last year gas prices rose an average 16 cents in the first month and kept rising until reaching a peak of $3.94 a gallon in early April.