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UPDATE 2-First oil on Seaway line to flow to US Gulf this weekend
May 17, 2012 / 6:26 PM / in 5 years

UPDATE 2-First oil on Seaway line to flow to US Gulf this weekend

* Landmark move to ease U.S. oil glut, raise prices

* Arb narrows $2, cash crude already weaker in expectation

* Startup “on schedule,” though a bit later than target

By Bruce Nichols

HOUSTON, May 17 (Reuters) - The first crude oil was expected to flow on the reversed Seaway pipeline this weekend, partners Enterprise Products and Enbridge Inc said on Thu rsday, a historic move to ease a Midwest oil glut and bring depressed North American crude prices closer to world market levels.

The startup skidded two or three days from the target of Thursday for restart of the 500-mile (805-km), 30-inch (76-cm) pipeline, which initially will deliver 150,000 barrels per day from the Cushing, Oklahoma, trading and storage hub to Houston in the heart of the main U.S. refining center.

The reversed pipeline is perhaps the clearest illustration to date of how the domestic boom in production of U.S. shale oil and Canadian heavy oil has upended infrastructure needs and spurred a series of high-profile expansions.

However, analysts caution that the impact of the Seaway reversal could be slow to hit U.S. oil markets, even after flows hit their target of 400,000 bpd in the first quarter next year.

“I don’t think this turns (West Texas Intermediate) into a bull market,” said energy analyst Tim Evans of Citi Futures Perspective in New York. “It’s a little bit of extra supply to the Gulf Coast, but it’s not going to leave the Midcontinent short.”

The line, which had operated northbound since 1995, was being recommissioned to flow southbound on Thursday, the target date for restart, and was expected to start flowing oil over the weekend, Enterprise and Enbridge said in a news release.

“It’s on schedule,” said Rick Rainey, spokesman for operating partner Enterprise Products, who had said earlier this week that startup would come “on or about May 17. It could be a day or two later.”

The line is historic as the first direct southbound link between Cushing, the delivery point for the New York Mercantile Exchange’s U.S. crude futures contract, and the main U.S. refining complex on the Gulf Coast.

With the news, the discount of West Texas Intermediate to global benchmark Brent shrank $2 to about $14 per barrel on Thursday. The flagship U.S. cash crude, Light Louisiana Sweet was unchanged at about $12 over WTI.

The spread and cash crude prices had been declining in anticipation, analysts said. The WTI-Brent spread was $19 earlier this week. LLS sold for $15 a barrel over WTI a week ago.

“I think it’s already in the market,” said Mark Routt of KBC Advanced Technologies in Houston. “But there is an effect. Our opinion is we’re going to see the WTI spread to LLS come in as a direct result of the additional crude.”

When the first oil enters the line, it will take 12 days to get from Cushing to Houston, Rainey said.

A number of other planned pipeline projects, along with rail and barge transport of crude, will be required to ease the oversupply more fully, analysts have said.

Crude oil inventories at Cushing reached a record level of 45.13 million barrels last week, and U.S. inventories were at a 21-year high, the U.S. Energy Information said on Wednesday.

The move to reverse the line was announced last November, after Enbridge bought ConocoPhillips’ 50 percent interest in the line and teamed with Enterprise, owner of the other 50 percent, to plan reversal.

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