By Amrith Ramkumar 

U.S. oil prices are trading at the smallest discount to global prices in more than a year -- a reversal that is crimping domestic exports and could lead to a buildup of crude.

Two new pipelines have started transporting oil from the prolific Permian Basin of West Texas and New Mexico to the Gulf of Mexico. That has eased a bottleneck, which has pushed the price of West Texas Intermediate -- the U.S. price benchmark -- closer to the global price of Brent crude oil.

The difference between WTI and Brent fell to $3.53 a barrel Monday, its lowest level since July 2018, according to Dow Jones Market Data.

The gap was at $3.73 in early Tuesday trading as U.S. crude fell 1.3% to $55.46 a barrel and Brent dipped 0.9% to $59.19. Just a month ago, Brent was about $7 more expensive than WTI.

Although the new pipelines have supported domestic oil prices temporarily, they have already started limiting U.S. exports as the WTI discount shrinks and the two prices converge. The drop in exports has contributed to a buildup in domestic inventories, an alarming trend to bullish oil investors that traders say could exacerbate fears of excess supply if it continues.

"Nobody really wants the barrels when they're $3 cheaper than Brent," said Bob Yawger, director of the futures division at Mizuho Securities USA. "It could get ugly long term."

Analysts in recent weeks have already been worried that softening demand and steady production will lead to a glut of crude. That is caused U.S. prices to trade 16% below their April peak and Brent to be roughly 20% below its 2019 high.

In one sign that the narrowing spread could hurt domestic prices, U.S. crude exports averaged about 2.4 million barrels a day during the three-week period ended Aug. 9, down from an average above 3 million barrels between the start of May and mid-July, Energy Information Administration figures show.

With exports dropping and refiners taking in less crude, domestic stockpiles rose unexpectedly in consecutive weeks through Aug. 9, according to the most recent data. Inventories typically drop in the summer amid steady fuel demand during peak travel season. New figures will be released Wednesday.

Some analysts are wary that a stockpile buildup could send oil prices falling as it did in late May and early June because even more pipelines are set to begin transporting crude in the coming months.

Pipelines that just began moving oil operated by Epic Crude Holdings LP and Plains All American Pipeline LP are also expected to ship more crude, also raising concerns about global oversupply.

"The capacity of these pipelines will dwarf Permian oil production growth over the coming quarters," Bank of America Merrill Lynch analysts said in a recent note to clients.

Elsewhere in commodities Tuesday, the most-active Comex gold futures inched up 0.2% to $1,514.20 a troy ounce, staying near a six-year high.

Write to Amrith Ramkumar at amrith.ramkumar@wsj.com

(END) Dow Jones Newswires

August 20, 2019 11:53 ET (15:53 GMT)

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