Enterprise Products Partners and Enbridge Inc. announced yesterday they will be reversing the flow of the Seaway pipeline to go from Cushing, Okla. to the Gulf of Mexico. This is a major development for the North American crude oil market, and welcome news to us.
Cushing is the delivery point for our West Texas Intermediate (WTI) futures contract. Recently, it had become more difficult to divert flows to the hub due to increased North American production. This news changes that.
With Seaway flow to refineries on the gulf beginning as soon as mid-2012, WTI will soon be more accessible to global markets. In turn, our NYMEX WTI benchmark contract will have added significance for market participants looking to manage their crude oil risk.
Over the past year, waterborne crudes have been priced at a premium to WTI. With the news of the pipeline reversal, we’ve already seen WTI come into line with waterborne crudes. The Wall Street Journal today posted an interactive graphic that details the market adjustment, and exactly how the pipeline reversal will happen.
Some analysts had seen this kind of development affecting the global crude market. As Phil Flynn of PFGBest recently told us in this video:
“As soon as we get some pipelines into Cushing, where we can get oil in and out once again, I think that will still be the best reflection of prices on a global scale.”
Similarly, Antoine Halff of the Energy Information Administration told the Financial Times yesterday:
“The bottleneck is being resolved. This is going to cause inventories to rebalance and prices to realign between inland and coastal locations.”
The reversed flow is expected to bring 150,000 barrels a day from Cushing to the Gulf by the second quarter of next year, and 400,000 barrels a day by early 2013. This provides much needed crude to the Gulf, frees up transportation costs for the crude industry, and enhances WTI’s position as a global benchmark product.