Seaway pipeline reversal to ease US Midwest oil supply glut
By DAN STRUMPF
The decision to reverse the flow of a key oil pipeline should alleviate a supply bottleneck that has trapped crude in the Central US for the better part of this year.
It will also raise the price of oil in the US, and could restore some of the lost legitimacy of the main US crude benchmark.
Benchmark crude on the New York Mercantile Exchange jumped above $102/bbl after Wednesday's announcement that Enbridge and Enterprise Products would reverse the direction of the Seaway pipeline to transport crude from the oil hub of Cushing, Okla., to refiners on the Gulf coast.
The reversal should help drain the brimming tanks of oil in the Midwest, where elevated inventories and a shortage of outgoing pipelines have depressed the price of crude on the NYMEX, also called West Texas Intermediate, compared with Europe's Brent benchmark for much of this year.
The discount of NYMEX crude, which is priced at Cushing, Okla., narrowed by more than $3 Wednesday to about $10/bbl in the wake of the announcement. That discount had hit a record of $27.88/bbl in October.
"What you're going to see is WTI more closely aligned with your global crude prices," said Brian Milne, refined fuels editor at Telvent DTN.
Light, sweet crude for December delivery recently traded up $2.07, or 2.1%, to $101.45/bbl. At one point it touched $102.29/bbl, its highest level since June.
Brent recently traded down 80 cents, or 0.7%, at $111.38/bbl.
Pending regulatory approval, the 500-mile pipeline could ship an initial 150,000 bpd from Cushing to the Houston-area refining market by the second quarter of next year, Enbridge and Enterprise said.
After pump station additions and modifications, the capacity could rise to 400,000 bpd by early 2013, the two companies said.
That flow should help reduce oil inventories in the Midwest, which have been elevated for much of the year. Over the past 12 months, commercial crude held in storage in the Midwest has risen 4% to 91.2 million bbl last week, according to Department of Energy data.
"It enables the increasing amount of oil production to get to the refining centers on the Gulf coast in an economical way," said Andy Lipow, president of the Houston oil-industry consultancy Lipow Oil Associates.
Seaway isn't the only pipeline in the works that will transport crude out of the Midwest. TransCanada Corp.'s (TRP) expansion of its Keystone pipeline, which carries Canadian crude into Cushing, will offer an outlet to the Gulf Coast as well.
But the timing for its completion remains up in the air after the State Department said last week that it won't offer a decision on whether to approve the pipeline until after the 2012 election.
Dow Jones Newswires
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