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More Oil Flows from US Midwest, Easing Glut

Tuesday, 30 Nov 2010 10:47 AM

Pipeline crude shipments from the U.S. Midwest to the Gulf Coast have surged in a trend that could improve midcontinent oil bottlenecks and ease pressure on U.S. oil futures, Newedge USA analysts said Tuesday.

In September, crude shippers sent 164,000 barrels per day (bpd) from PADD 2, the Midwest, to PADD 3, the Gulf Coast, up from 48,000 bpd in August, the analysts said in a report, citing U.S. Energy Information Administration data.

Most of the September shipments, or 151,000 bpd, went by pipeline, with a small amount traveling by barge.

Pipeline inflows to the Midwest over the past years have far outweighed the amount of crude shipped out of the region, in part due to little available pipeline infrastructure to take crude away from PADD 2.

The recent pipeline movements are "a rather dramatic reversal of once traditional northbound flows from the Gulf, and possibly an early signal that a Midwestern bottleneck in new Canadian crude flows ... might be easing," Newedge analysts led by Antoine Halff wrote.

The trend "could have significant implications for Brent-WTI spreads, inter-regional U.S. arbitrage and the time structure of the WTI futures curve," the report said.

U.S. oil futures for January delivery traded near $85 a barrel Tuesday, at a significant discount to later months and a discount of $1.80 a barrel to Brent crude for January.

Since late 2008, U.S. oil futures based on the West Texas Intermediate specs have traded in a sometimes sharp contango — when near-term crude is priced at a discount to later-dated crude — in part due to supply gluts in Cushing, Oklahoma, the tank hub where contracts are delivered.

WTI has also traded at large discounts to Brent, Europe's benchmark, closing an arbitrage window that historically attracted trans-Atlantic crude shipments to the United States. Instead, Canada has grown into by far the top foreign oil supplier, shipping oil into the Midwest.

Greater pipeline outflows from the region coupled with rapidly expanding storage capacity at Cushing may help to alleviate contango levels and improve WTI's value relative to Brent. Newedge also noted that crude imports to the Midwest had slowed in recent months.

"The combination of reduced imports, rising export capacity, and rising storage capacity will likely go some way towards easing part of the price pressure that had been increasingly taken for granted in Midwestern crude markets in recent months," Newedge said.

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Pipeline crude shipments from the U.S. Midwest to the Gulf Coast have surged in a trend that could improve midcontinent oil bottlenecks and ease pressure on U.S. oil futures, Newedge USA analysts said Tuesday. In September, crude shippers sent 164,000 barrels per day (bpd)...
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2010-47-30
Tuesday, 30 Nov 2010 10:47 AM
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