Enbridge pipelineDan Bannister
Oil producers are benefiting from the spike in crude oil prices on Wednesday, but some U.S. refiners are having a rough day. Western Refining is off 12.2 per cent in afternoon trading, CVR Energy is down 14.9 per cent and Tesoro Corp. is down 8.3 per cent. Blame the losses on Enbridge Inc.
The Canadian pipeline company announced a $1.5-billion (U.S.) deal to acquire half of the Seaway crude pipeline from ConocoPhillips Co. As a result of the deal, Enbridge will reverse the flow of oil from Cushing, Oklahoma, to the Gulf Coast, reducing a glut of oil that has been blamed for holding back the price of West Texas Intermediate oil. That's a big deal for oil refiners. As RBC Capital Markets pointed out in February, the lower price of WTI relative to other benchmark crude – notably, Brent crude – translated into fat profit margins for refiners, a situation that was unlikely to shift until new pipelines were built, perhaps in 2013.
Well, the Enbridge deal appears to have moved that date up. Now, with WTI surging above $102 per barrel on Wednesday and Brent crude essentially flatlining, the spread between the two benchmarks has narrowed considerably – falling below $10 per barrel from levels close to $28 as recently as October. As the spread narrows, those profit margins enjoyed by refiners are retreating, and fast.
Still, as Bloomberg News reported, the amount of crude oil carried through the Seaway pipeline is likely to begin at a modest pace, and not until 2012. The pipeline will carry just 150,000 barrels per day in the second quarter of next year, ramping up to 400,000 barrels per day in 2013 after pump modifications are made.
"In the short term, this will definitely clear some of the crude out of Oklahoma," said Francisco Blanch, head of commodities research at Bank of America Corp., according to Bloomberg. "This may not be enough to eliminate the glut in the Midwest because output is growing by hundreds of thousands of barrels a year. We still need additional transportation capacity."
David Berman