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A pump jack draws oil from the ground near a hydraulic fracturing operation near Bowden, Alta.Jeff McIntosh/The Globe and Mail

The Cushing logjam has broken, and with its opening, North American oil has lost the bargain-basement status it has sustained for the past two years.

Since early 2011, oil producers in the United States and Canada have suffered from large discounts in the market – the trendsetting West Texas intermediate (WTI) was priced well below international benchmark North Sea Brent, while a larger-than-normal gap opened up between WTI and Canadian heavy crude.

The boom in U.S. tight oil production, on top of growing oil sands volumes from Alberta, created a glut at Cushing, Okla., a terminus that served as a traditional pricing-point for WTI but had virtually no pipeline access to the massive refinery capacity at the Gulf Coast. As a result, companies invested heavily in new transportation – pipelines, rail cars, barges, even trucks – to move landlocked North American crude to coastal markets where it would fetch international prices.

Now, that investment in transportation is providing a big payoff. Along with the stronger economic news in the United States, the increased ability to get western oil to markets on the U.S. Gulf Coast and East Coast is credited for driving North American crude higher, even as Brent prices lag.

With a big jump Thursday, WTI prices are now less than $1 below Brent – the smallest spread since late 2010. WTI rose $1.56 on the New York Mercantile Exchange Thursday to $108.04 (U.S.) barrel, its highest close in 16 months. Brent settled at $108.70, up 9 cents. Prices for Canadian heavy oil – Western Canada Select – have climbed even more quickly than WTI this year. Compared to a whopping $40 discount late last year, the WCS-to-WTI discount had narrowed to $16.50 a barrel Thursday, according to Net Energy Inc.

The increased amount of oil being shipped by rail was brought into sharp relief after the disaster at Lac-Mégantic, Que. A train carrying crude headed for Irving Oil Ltd.'s Saint John refinery derailed and exploded, killing an estimated 50 people. The industry will no doubt face increased safety requirements that will drive up costs.

In addition to an increase in rail capacity, pipeline companies have made progress in connecting landlocked production to markets. Enbridge and its U.S. partner – Enterprise Products Partners LP – opened the key Cushing bottleneck with the reversal and expansion of the Seaway pipeline, while TransCanada Corp. is currently building the southern leg of its planned Keystone XL line, which it says will be needed regardless of the U.S. decision on the controversial oil sands pipeline.

"With oil from the northern part of the continent down to the Gulf Coast, the demand for imported oil is falling rapidly," said Earl Sweet, senior economist at BMO Nesbitt Burns. "All this investment is helping to reconnect WTI with global prices and getting rid of a discount that reflected the fact that transportation infrastructure hadn't matched production growth."

As a result, once-bulging inventories at the Oklahoma terminus are rapidly shrinking. "They're draining the swamp at Cushing," oil economist Jim Williams said Thursday.

But the rise in North American prices against the global benchmark also represents a growing sense of optimism in the U.S., while Europe remains in recession and even emerging markets like China – whose economic strength once fuelled global oil markets – now show signs of weakness.

U.S. refineries are booming – the federal Energy Information Administration reported this week that their volumes have reached levels not seen since 2007. And gasoline demand in the U.S. is growing at its fastest rate since the recession.

"It's a very sudden rise in driving, so Americans are behind the wheel again," said Peter Tertzakian, energy economist with ARC Financial Corp. in Calgary. "Whether that is sustainable is another question – particularly as the gasoline price inevitably goes up."

Pump prices in North America have been on the rise in recent weeks – averaging $1.344 a litre (Canadian) this week according to a survey by Kent Marketing – and could climb further based on higher WTI prices, the economist said.

But they have robbed some of political urgency from the drive for new pipelines across Canada, including east-bound lines that have been touted as necessary to bring lower-cost North American crude to eastern consumers.

Mr. Tertzakian and Mr. Sweet insist that new pipelines will be needed – whether Keystone XL, Enbridge's proposed Northern Gateway in B.C., or TransCanada's Energy East project connecting Alberta to Quebec and possibly New Brunswick seaports.

"The pipeline expansions are helping but production will still be rising very rapidly north of Cushing – both in North Dakota and Alberta – so there is going to be need for new pipelines to handle that production," Mr. Sweet said.

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