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May 11, 2012 ||
Gary Morsches ||
Next week, the Seaway pipeline between Cushing, Oklahoma and the Gulf of Mexico will reverse, directing 150,000 barrels of oil per day (400,000 by 2013) from the bottleneck at Cushing to the Gulf. As my colleague Dan Brusstar wrote last November after the initial announcement, this is major change to the North American oil complex that will enhance the value and global availability of West Texas Intermediate crude.
Jim Teague, COO of Enterprise Product Partners who owns the pipeline, was on the floor of the NYMEX yesterday talking with traders about the reversal and the affect it will have on crude prices. He also talked with Sandra Smith of Fox Business in the above video, who asked him what will happen when pipelines begin running to the gulf where refineries are using foreign oil:
“There’s a lot of domestic crude being produced making its way to the gulf coast. You’ve got crude coming out of the Eagleford going to the gulf coast. And you’ve got shale plays all over the country that will produce more domestic crude oil. The effect of the total is going to be to back out imports. We import about 5 million barrels a day from places other than Canada and Mexico… What if we produced 4 million barrels a day of (domestic) crude oil?”
Backing out oil means foreign crudes from the north sea and western Africa will need a new home because North American crudes will be used at these refineries instead. At that point, we may see prices/spreads to move back to their historical levels.
This infographic from the Wall Street Journal shows how the pipeline will be reversed.
Gary Morsches is managing director of energy products at CME Group.
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