* Two 500,000 bbl cargoes domestic sweet from Cushing offered
* Offers at Brent minus 50 cts/bbl
* Delivery at Jones Creek, Texas City or Houston area
* Analysts expect WTI-Brent spread to narrow with new flow
HOUSTON, May 11 (Reuters) - BP has made the first offer to sell crude oil on the U.S. Gulf Coast from the glutted Cushing, Oklahoma, trading hub via the reversed Seaway pipeline, due to start next week, raising hope for stronger prices for Canadian and U.S. crudes, traders and brokers said on F rid ay.
Two 500,000-barrel cargoes of U.S. sweet domestic crude were offered in the cash crude market at a 50-cents per barrel discount to the price of global benchmark Brent crude, market sources said. BP declined comment.
Linking the price to Brent underlines the irrelevance recently of West Texas Intermediate futures for pricing crude on the Gulf Coast.
Details of the offers were unclear, and information about them was still unfolding. One question was whether they were for June or July delivery or both.
Surging production from Canadian oil sands and newer U.S. shale fields has flooded into Cushing, the delivery point for the New York Mercantile Exchange's WTI futures contract, with no outlets to the Gulf Coast. The result, particularly in the past 18 months, has been steeply discounted WTI futures prices, against which Canadian and U.S. crudes price.
The crude being offered was for delivery in Texas at Jones Creek, the terminus of Seaway on the Gulf Coast, or at Texas City or "some other Houston area discharge port," via pipeline links, sources said. Seaway branches to Texas City.
Traders and brokers have been waiting for outlets to open from Cushing to the Gulf Coast, historically the source not the destination of pipeline crude at Cushing. The idea is WTI prices will strengthen against Brent when WTI can reach the sea and world markets.
"Increasing the competition between those U.S. and Canadian supplies with other grades of international crudes in the Gulf will make the WTI contract more viable again and narrow the Brent-WTI arbitrage," said Tom Bentz, director of BNP Paribas Commodity Futures Inc in New York.
Crude contracts on the Gulf Coast price against WTI, but the premiums are determined by the WTI-Brent spread . The biggest concentration of U.S. refining is on the Gulf Coast and has been largely dependent on imported crudes.
The clear attraction of WTI to Gulf Coast refiners is that, because of inability to get crude to the Gulf Coast from Cushing until now, WTI has been steeply discounted to Brent. Th e spread settled Friday at $16.13 per barrel in favor of Brent.
Offers for the cargoes at minus 50 cents against Brent seemed a high price, a trader said. Some sources suggested the offer was intended more to test market reaction than to make an actual deal, a tactic often employed in crude market.
"That seems rich with LLS trading at Brent minus $2 or more. Domestic sweet I would think would have to trade at less than LLS," the trader said.
Light Louisiana Sweet , the flagship Gulf Coast crude, has fallen this week as much as $2 below the transatlantic spread - in effect, Brent - even as grades generally strengthened, suggesting that the market was already seeing the effects of the first flow of crude to the Gulf Coast directly from Cushing.
Seaway, which for decades flowed north from Jones Creek to Cushing when U.S. imports of crude were more important than currently, was scheduled to start flowing the opposite way on May 17, operator Enterprise Products has said.
Genscape, an industry monitor that uses helicopter overflights, power sensors and other indirect means, said it had observed extensive work at two pump stations on Seaway within a week of proposed startup.
The work could mean startup will be delayed but likely means that operator Enterprise Products and partner Enbridge Inc were working to increase flow beyond the initial 150,000 barrels per say planned. The goal is 400,000 bpd in early 2013.
"These two stations are not necessarily needed to start the line. It is more likely that the work is related to expanding the flow on Seaway," Genscape said in a customer alert.
Goldman Sachs, in a note last month, said it expected Seaway flow to increase at the rate of 40,000 bpd after startup, which would put it well above 150,000 bpd by the end of the year.