Removing Bottlenecks

The main culprit behind the recent uncharacteristically deep discount of West Texas Intermediate’s (WTI) price compared to Brent is the rapid rise of domestic and Canadian oil flows into Cushing, Oklahoma. Faced with costly and constricted transportation routes out of the Cushing terminal, crude oil producers rely on price discounts to make these typically light, low sulfur oils attractive. Helping to ease the cost of moving inland crude oil to US Gulf Coast markets is the flow reversal of the Seaway pipeline that is scheduled for completion this coming May. Initial flows through the line are targeted at 150 kBD, with higher rates planned for the coming years. With pipeline transportation costs of around $4/barrel to move oil from Cushing to the Gulf Coast, the discount needed to entice refiners to this oil seems poised to shrink. Tanker owners, especially those who regularly bring light, low sulfur crude oil from West Africa to the US Gulf Coast, should be wondering if the initial flows from the Seaway line as well as the increases planned could impact their business. Download here