| HOUSTON/NEW YORK
HOUSTON/NEW YORK Just ahead of the Seaway oil pipeline restarting in reverse to clear a bottleneck of crude in the U.S. Midwest, Wall Street analysts have rarely been more divided over the outlook for one of the hottest oil market bets in years triggered by the glut.
For some like Goldman Sachs, the reversal of Seaway's flow set for Thursday is a seminal moment, marking the first major pipeline to ship oil directly from the Midwestern trading and storage hub at Cushing, Oklahoma, to Houston in the country's main refining center on the Gulf Coast.
Goldman and others say relieving swollen crude inventories at Cushing, the delivery point for the New York Mercantile Exchange's West Texas Intermediate futures contract, should also ease the oil pricing anomaly that has roiled the market for 18 months -- inland U.S. crude trading at an abnormally wide discount to seaborne Brent crude.
For others like Barclays, the reversal of Seaway by Enterprise Products (EPD.N) and Enbridge Inc (ENB.TO) is almost irrelevant. They say the bottleneck will persist at Cushing deep into next year as the rapid growth of oil production in the United States and Canada outstrips pipeline, railway and barge projects to carry it south.
Goldman analysts say the Seaway reversal will help narrow WTI's discount to Brent to $5 a barrel by the year's end, even before the line is expanded from 150,000 barrels per day to 400,000 bpd in early 2013.
The so-called transatlantic arbitrage for June futures, which has bounced between $27 and $7 over the past six months, widened to over $18 a barrel on Tuesday; for December futures, the spread was just over $13 a barrel. Over the previous decade, WTI and Brent have averaged near parity.
Analysts at Barclays disagree. Last month they raised their Brent price forecast and lowered WTI, creating an implied average spread of $15 for 2012, among the widest forecasts. They foresee a persistent WTI-Brent spread averaging $10 in 2013 and not returning to parity until 2020.
"Our view is that Seaway's reversal does not make much of a difference to Midwest balances," said Barclays analyst Amrita Sen. "Domestic production growth and Canadian flows are likely to dwarf (Seaway's) 150,000 barrel per day takeaway capacity."
Nearly 18 months after the first appearance of the unprecedented gap between WTI and Brent prices, the spread is proving harder than ever to call. While pipelines like Seaway grab the headlines, a host of harder-to-track railway projects and barge shipments are clouding the view.
On average, expectations for the average Brent-WTI spread for 2013 have widened in the last four months, rising from $5.30 in a Reuters December price poll to $7.20 in late April, according to an analysis of the data.
But those numbers belie the persistent uncertainty. The gap between the highest and lowest forecasts has remained near $20 since last August, well before a host of new projects were meant to bring greater clarity over when the two prices would again converge. The gap was wider twice, in October and November.
Recent adjustments have oscillated, moving the gap both wider and narrower.
At the most bullish end of the spectrum, analysts at Bernstein Research cut their 2013 forecast from $5 to parity, citing extra transport including railways. Barclays went the other direction, forecasting an average of $10 after predicting for months that the gap would disappear next year.
Portugal's Banco BPI has consistently held the most bearish view of the spread at $20 a barrel in April's poll.
A Reuters survey of more than a dozen analysts, consultants and government data sources has suggested that the overall surplus of Midwest crude is unlikely to fall significantly this year -- in fact, it may marginally rise.
"Anyone can take a guess at where the price spread is going to go, but if you add up all the numbers, I don't see Midwest inventories draining this summer," said Michael Hiley, head of OTC Energy at NewEdge USA in New York.
"You're starting to bail out the boat, but there's still water coming in," he said.
TAKEAWAY LAGS NEW SUPPLY
Overall the rise in "takeaway" capacity to the Gulf Coast in the south could total between 630,000 and 760,000 bpd by the end of this year, according to experts surveyed by Reuters.
As northern output continues to boom, however, that may not be enough. Between new shale production and rising imports from Canada, 2012 growth in Midwest supplies were estimated to range from 352,000 to 953,000 bpd, according to the informal Reuters survey.
The huge difference between minimum and maximum forecasts of Midwest output growth is largely due to uncertainties about the speed of development in North Dakota's Bakken region.
North Dakota's oil production has shown few signs of slowing despite soaring costs, with March output rising 19,000 bpd to a new record 575,000 bpd.
Ultimately, even the hallmark pipeline projects are subject to change. Industry intelligence provider Genscape told clients last week that new construction suggested Seaway flows may expand faster than expected. A second major expansion to boost capacity to 850,000 bpd is due to be complete by mid-2014.
'OFF-RADAR' RAIL AND BARGE HOLD KEY
The long lead times, large budgets and public nature of pipeline projects makes it relatively easy to track the dozen or so new conduits that are expected to help ease congestion.
Not so for smaller-scale plans like those of GT OmniPort in Port Arthur, Texas, a rail facility that will soon start unloading as much as 80,000 bpd of crude, carried down from the Bakken region of North Dakota and elsewhere.
"We've largely stayed off the radar," said General Manager Bart Owens. "We expect the first unit train of crude will arrive in the second week of June," he added.
Multiple variables can also make it hard to predict how such projects will translate into flows.
For instance, railway capacity out of the Bakken fields is set to expand by almost 500,000 bpd this year, authorities say, with about a quarter of total shipments moving to coastal markets where refiners can substitute for costly imports.
"By the end of this year, nameplate rail capacity could be as high as 720,000 bpd, though we'd expect overall volumes to be slightly lower," said Justin Kringstad, analyst at the North Dakota Pipeline Authority.
Shipments may still be constrained, however, as operators run short of petroleum rail cars. Transport costs have trebled since 2010, analysts at Eurasia Group said this week.
Total U.S. and Canadian railway shipment of crude and oil products reached a record of more than 15,000 loadings in April, 50 percent higher than a year earlier, data from the American Association of Railways showed -- equivalent to about 1.3 million barrels a day, the oil production of Algeria.
"Rail car availability is an impediment, as is access to loading and unloading facilities," says Jim Siciliano, vice president for business development at Nustar Energy (NS.N).
NuStar has received railed crude at St. James, Louisiana, since 2010. A recently completed expansion with EOG Resources (EOG.N) has bumped up capacity, and the complex is now unloading 140,000 bpd, according to Genscape.
The total volume of crude-by-rail receiving capacity in Texas and Louisiana could exceed 400,000 bpd in the second half of this year, up from about 90,000 bpd at the start of the year, according to a Reuters totaling of old and new projects.
That growth has already outpaced many expectations.
Union Pacific (UNP.N) hauled 20,400 carloads of crude oil in the first quarter of this year alone, up from just 3,900 in the whole of 2011, CEO John J. Koraleski said last month.
Warren Buffet's BNSF BNISF.UL also shipped 50 percent more crude and petroleum products in the first third of 2012 versus the year before, according to the company's weekly reports.
Barge-hauling of crude down the Mississippi River also has shot up. Government data show it has grown from a trickle in 2010 to a record 56,000 bpd in January. Further gains loom.
"Demand is just higher than we ever anticipated," said Tim Allen, liquid sales director for American Commercial Lines, the second largest U.S. inland barge operator. They're adding 14 newbuild 30,000-barrel tank barges to their fleet this year, and may keep in service some that were scheduled to be retired.
And in the end, one Midwest choke point may clear only to yield to another farther north as oil production and shipping logistics race ahead.
"Seaway will start to drain Cushing, but there will still be a big bottleneck at Chicago," said Adam Bedard, managing director at Bentek Energy. He sees no relief there until mid-2014 or later.
(Reporting By Bruce Nichols and David Sheppard; Editing by Marguerita Choy)