US Gulf-Cushing pipelines will reduce Brent, WTI price gap

28 March 2012 00:16  [Source: ICIS news]

HOUSTON (ICIS)--The discount for midwest and Canadian crude oil will likely recede as the Seaway and Keystone pipelines from Cushing to the US Gulf come on line in 2013, an analyst said on Tuesday.

“Once enough [crude pipeline] capacity is in place, the differentials [between the crude grades] will close pretty quickly,” said analyst Blake Eskew with Purvin & Gertz.

On Tuesday, West Texas Intermediate (WTI) crude in the US midwest settled at $107.33/bbl, compared with Brent crude at $125.54/bbl, a difference of $18.21/bbl.

Midwest crude oil, including WTI and North Dakota Bakken, and Canadian crude are discounted because the oil is trapped, Eskew said. Since refineries outside of the midwest cannot access the oil, the crude supplies are at a surplus.

Pipelines flow into the Cushing oil hub in Oklahoma, but there is not enough outgoing pipeline capacity, said analyst Stephen Jones at Purvin and Gertz. Jones said 5.0m bbl/day of oil flow into the midwest, while 200,000 bbl/day flow out of the region.

TransCanada has begun its Gulf Coast Project for a 485-mile (780km) pipeline from Cushing to Nederland, Texas, which will be in service mid to late 2013.

In addition, Enbridge and Enterprise Products Partners plan to more than double the capacity of the Seaway Pipeline from Cushing, Oklahoma, to the US Gulf coast, the companies said. The capacity will be expanded to 850,000 bbl/day by mid-2014.

By early 2013, 400,000 bbl/day of capacity is expected to be on line for the existing Seaway Pipeline.

Eskew said Brent and Louisiana Light Sweet (LLS) crude prices will hold as midwest and Canadian crude prices will increase, closing the gap.

The stabilising of prices between WTI and Brent will not aid US east coast refiners, Eskew said.

In the past six months, three refineries serving the east coast have shut down, and one is expected to close by June 2012.

Hess’s Hovensa 350,000 bbl/day St Croix refinery in the Virgin Islands closed in February. ConocoPhillips 185,000 bbl/day Trainer and Sunoco’s 178,000 bbl/day Marcus Hook refineries in Pennsylvania closed in late 2011.

Eskew said until a large-capacity pipeline is constructed to take crude to the east coast, the refineries will continue to pay a premium for crude.

By: Sheena Martin
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