UPDATE 4-Seaway crude line reversal brought forward to May
* Proposed reversal start moved two weeks earlier to May 17
* FERC has 30 days to review proposal, respond
* Brent-WTI spread narrows sharply, biggest move since Nov.
By David Sheppard and Bruce Nichols
NEW YORK/HOUSTON April 16 (Reuters) - Enterprise Product Partners and Enbridge plan to reverse the flow of the Seaway oil pipeline by mid-May pending regulatory approval, allowing the line to start draining the glut of crude from the U.S. Midwest two weeks ahead of schedule.
The pipeline reversal, which will initially carry about 150,000 barrels per day of crude from the Midwest to the Gulf Coast, is now set to start on May 17, according to a regulatory filing to the Federal Energy Regulatory Commission (FERC) made on Friday, which also laid out proposed tariffs for the first time.
Enterprise said it has moved ahead of schedule on the plan, which will send rising flows of Canadian and North Dakotan crude building up in the Midwest to the Gulf Coast where it fetches a hefty premium.
"We've had a really good response from our crews working in the field and have been working well with our partner. Everything's falling into place very nicely," Enterprise spokesman Rick Rainey said.
"We expect 150,000 bpd to be fully nominated," Rainey said, adding he expected "at least" 10 percent of the pipeline capacity to be set aside for non-committed shippers.
High inventory levels at the Cushing, Oklahoma delivery point for the U.S. oil futures contract, also called West Texas Intermediate, have weighed on the contract relative to international benchmark Brent.
News that the reversal could start early caused Brent to fall sharply relative to WTI, with the Brent-WTI spread narrowing to about $15 a barrel from $19 on Friday, the biggest one-day percentage move since mid-November.
On Wednesday, WTI closed up 10 cents at $102.93 a barrel, while Brent lost $2.53 to settle at $118.68 a barrel.
FERC said the regulator has a 30 day period to review the proposal from the date of the filing on April 13.
"This is something the commission will have to review and act on," a FERC source said.
The Seaway Crude Pipeline Company filing proposed initial fixed-rate tariffs for sending oil from Cushing to the Gulf ranging from $2.07 to $4.32 a barrel. The company also has a separate application to operate more flexible market rates, though FERC may also decide to impose its own fixed tariffs.
"This is designed to give some guidance to the market to give them an idea what we're looking at in terms of base rates," Enterprise spokesman Rainey said.
"Market-based rates would give us flexibility to respond to conditions," Rainey said.
Analysts at Goldman Sachs said in a research note last week that the application for market-based tariffs had "induced considerable uncertainty" into the oil market that had stopped the Brent-WTI spread from narrowing earlier this year.
The rates proposed by the partnership, however, would appear to be in line with previous FERC rates.
"FERC has ruled against market-based rates in comparable cases, suggesting the request will be denied and the tariff will be closer to $3-$5 a barrel," Goldman Sachs head of energy research David Greely said in the note last week, adding Brent-WTI could narrow to just $5 a barrel by the end of 2012.
Traders said they now expected the proposed rates would be approved as the tariffs appeared to be within range.
"The move in the arb today seems to imply the market assumes no hold up in approval," one Connecticut-based oil broker said.
Oil traders have until April 28 to file an objection to the proposed tariffs.
Analysts said the proposed rates would make it easier for Seaway to start taking bookings from potential shippers.
Enterprise said that crude shipped on the 150,000 bpd pipeline would initially take 15 days to travel from Cushing to the Gulf, but that time would fall to just five days when the pipeline's capacity increases to 400,000 bpd in the first quarter of next year.
The initial announcement of the Seaway reversal last October saw the Brent-WTI spread collapse from a record peak of $28.10 a barrel to less than $6 a barrel by mid-November.
The spread had settled into a $6-$12 a barrel range between November and January, but a rapid build-up in crude stockpiles at Cushing in the first quarter of this year saw the spread blowout again to above $20 a barrel by early April.
Crude oil inventories at Cushing reached 40.6 million barrels in the week to April 6, the highest level since May 2011. The record is 41.9 million barrels hit in April 2011.