Pipeline Expansion in America’s Mid-west and its impact on WTI Oil trading

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Prices for West Texas Intermediate (WTI) oil have climbed in recent weeks to trade close to a four-month high in New York. While Brent prices have also risen, trade results indicate a decrease in the Brent-WTI spread for future months.

Over the past several years, WTI and Brent prices have diverged, with WTI trading at an average discount of $17.47 per barrel to Brent in 2012. With Cushing stocks declining due to the extended Seaway pipeline, WTI’s discount to Brent crude is expected to shrink in the coming months.


WTI vs. Brent pricing since 2007. (Source: ICE – Graph created with ZEMA)

Some of the recent price increase has been attributed to the Seaway pipeline running from Cushing, Oklahoma, to Freeport, Texas, which resumed after shutting down on January 2 to boost capacity from 150,000 barrels to 400,000 barrels per day (BPD). The 500 mile (805 km) line was reversed in May of 2012 to allow the transport of crude oil from the bottlenecked Cushing hub to the vast refinery complex along the Gulf Coast near Houston.

Stockpiles at Cushing rose to a record 50.1 million barrels in the week ended January 4, indicating a serious oil glut. With continued development on the Seaway Pipeline Project, the line capacity is expected to reach 850,000 BPD by first quarter of 2014. The expanded pipeline will provide further southbound capacity to the Gulf Coast, where it can be refined and transported to other regions of the US.

Below is a graph showing WTI and Brent forward curves built on results of trade on January 24, 2013:


 Figure 1: WTI vs. Brent forward curves until 2016. (Source: ICE – Graph created with ZEMA)

While Brent prices look to be in a state of backwardation, WTI prices appear to exhibit signs of contango for the coming four to five months. This development in WTI contracts is followed by a return to normal backwardation after July. This suggests that over the next few months, the gap between WTI and Brent will narrow slightly.

ZEMA collects WTI and Brent pricing data from ICE to make it easy to analyze trends and patterns. This can help you make more informed decisions. With a comprehensive level of coverage, ZEMA can get your organization the latest data, no matter what the source.

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