Canadian oil glut at Cushing could last two years
* Canadian crude faces bottlenecks in West, Cushing
* New pipelines will help ease glut
* Asia link seen boosting returns
By Scott Haggett
EDMONTON, Alberta, March 15 (Reuters) - A glut of Canadian oil at the Cushing, Oklahoma, storage hub will depress prices there for at least two years until new pipelines can take the crude to other markets, J.P. Morgan's head of global oil research said on Tuesday.
The oil faces bottlenecks both in Western Canada and at the huge Cushing site, trapping it in both locations and keeping prices low, Lawrence Eagles said in a presentation to the World Heavy Oil Congress.
Cushing is the delivery point for the benchmark West Texas Intermediate futures contract, which has sold for well below the European Brent benchmark, in part because swelling shipments of Canadian oil into the hub have pushed storage levels to record highs.
"That has had a very significant dampening effect on prices, particularly over the past six months or so," Eagles said. "Although policies will be in place to improve the situation, I think it will take a couple of years before we finally get that bottleneck and that logjam cleared."
Eagles said his forecast assumes new pipelines, such as TransCanada Corp's (TRP.TO) planned Keystone XL line, are built to take oil to the U.S. Gulf Coast refining hub from Cushing.
However, even if those lines don't appear, he thinks shippers will keep finding alternative methods of taking Cushing oil to the Gulf of Mexico to take advantage of the wide spread between the cost of a barrel of oil at the storage hub and what Texas and Louisiana refineries are paying for similar grades.
"People are finding more ways every day to get oil out of the region and down to the Gulf Coast," he told reporters. "If the price is there, price will find a way."
Eagles also said the bottleneck in Western Canada could be eased by increasing access to the Asian market by adding pipeline space to the country's Pacific Coast.
Russia has boosted returns for its oil after building the Eastern Siberia-Pacific Ocean pipeline to export crude to China, Japan and Korea, lowering its dependence on the European market, he said.
"ESPO is a premium-price crude in the Asian market," he said. "It's gone from being a heavily discounted new crude to being quite a sought-after crude at this point in time ... It's Economics 101, if you have more demand for your product you get a better price." (Editing by Rob Wilson)
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