Oil Surges on Reversal of Seaway Pipeline

WTI surged above $102 on news that the flow of crude oil will be reversed on the Seaway Pipeline. The result in Wednesday’s trading has been panic in the spread between WTI and Brent Crude with funds and other market players buying WTI and selling off Brent...fast.

A Petroleos Mexicanos (PEMEX) oil rig near the shores of the state of Campeche, Mexico.
Eunice Adorno | AFP | Getty Images
A Petroleos Mexicanos (PEMEX) oil rig near the shores of the state of Campeche, Mexico.

The decision by Enbridge and Enterprise Products Partners to reverse the flow along the Seaway line, which brings crude oil from the U.S. Gulf to the delivery point of Nymex crude in Cushing, would eventually result in more barrels of the long under-valued WTI into the U.S. Gulf Coast—where prices have been more closely linked to expensive Brent Crude.

Other spreads (the price differential between two contracts) are also feeling the effects of the news. As of mid-Wednesday morning trading, the Nymex crack spread is down 12 percent, the RBOB gasoline crack is down 14 percent, heating oil to RBOB spread is down 10 percent, and of course, the spread between Brent and WTI has plummeted 18 percent to $10.66—a stark contrast to the record $28 a barrel just a month ago.

The development, pending regulatory approval, will reduce the cost of transporting WTI, which had long depressed the price of actual raw material, and allow producers more takeaway capacity and allow production to arrive at the market faster than has been the case.

The likely long-term beneficiaries include: Valero Energy, LyondellBasell Industries, ExxonMobil , Enbridge and North Dakota oil producers.

In addition, HollyFrontier , Coffeyville and MarathonOil will likely be impacted negatively.