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Oct 25, 2013 ||
Gary Morsches ||
Of all the data signaling long-term growth in U.S. crude oil production, none may be more telling than Union Pacific Railroad’s decision to invest more than $3.65 billion in its infrastructure this year. Here’s what one analyst told Reuters of the news:
“You’re witnessing the long-term perspective of railroads, which invest capital on a 20- to 30-year basis, and the short-term myopic view of hedge funds, which invest on a two- to three-minute basis,” said Matt Troy, an analyst at Susquehanna Financial Group in New York. “Spreads go up, spreads go down, but just looking at the geography of oil production and refining capacity, railroads will play a strategic role in moving crude from the shale for years to come.”
The long-term investment by rail companies is just one of many signs that the predictions of sustained crude oil growth in North America are likely to come true. Within the next few months, the Seaway pipeline looping will double capacity from 400,000 barrels per day to 800,000 barrels per day and the southern leg of the Keystone pipeline is scheduled for completion, adding an additional 600,000 barrels per day. This will mean an extra one million barrels per day flowing out of Cushing, Oklahoma to the Gulf of Mexico. As we’ve written before, this will continue not just to help energy self-sufficiency in the U.S., it makes the oil produced here – like WTI, stored at Cushing – all the more valuable. We continue to see a shrinking spread between WTI and the North Sea Brent contract, and expect that with the continued growth in North American production, WTI will return to trading at a premium to Brent.
To capture all of the factors contributing to the energy renaissance in North America, we developed the above infographic, which shows the big improvements in production, distribution and imports.
Gary Morsches is managing director of energy products at CME Group.
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