Oil in New York Surges Above $100 on Reversal of Seaway Pipeline

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By Mark Shenk

Nov. 16 (Bloomberg) — Oil in New York climbed above $100 a barrel to a five-month high as Enbridge Inc. said it would reverse the direction of the Seaway pipeline, opening an outlet for crude from the central U.S. and Canada.

Futures rose much as 2.7 percent after Enbridge agreed to acquire ConocoPhillips’s share of the pipeline that runs between Cushing, Oklahoma, and the Gulf Coast and announced the reversal. The change may alleviate a bottleneck at the Cushing storage hub that had lowered the price of West Texas Intermediate, the grade traded in New York, versus other oils.

“In the short term, this will definitely clear some of the crude out of Oklahoma,” said Francisco Blanch, head of commodities research at Bank of America Corp. in New York. “This may not be enough to eliminate the glut in the Midwest because output is growing by hundreds of thousands of barrels a year. We still need additional transportation capacity.”

Crude oil for December delivery rose $2.08, or 2.1 percent, to $101.45 a barrel on the New York Mercantile Exchange. Futures reached $102.06, the highest level since June 10. The contract traded at $99.70 before the Seaway announcement.

Brent oil for January settlement dropped $1.39, or 1.2 percent, to $110.79 a barrel on the ICE Futures Europe exchange in London. The European contract’s premium to West Texas crude narrowed to as little as $8.32 a barrel, the smallest spread since March 9. The spread surged to a record high of $27.88 on Oct. 14.

Initial Pipeline Capacity

The pipeline will operate with an initial capacity of 150,000 barrels a day by the second quarter of 2012, according to a statement from Enbridge. Enterprise Products Partners LP also owns a share of the link.

The pipeline will enable more oil from Canada and North Dakota to reach the Gulf Coast, home to about half of U.S. refining capacity.

The reversal “will definitely reduce the amount of rail and barge that is needed,” said Hussein Allidina, the head of commodity research at Morgan Stanley in New York. “You are still going to evacuate some crude via some of these higher costs transportation means” as Canadian and U.S. output rises.

An Energy Department report today may show U.S. crude oil stockpiles fell 1.2 million barrels last week, according to the median of 13 analyst responses in a Bloomberg News survey. Supplies increased 1.3 million barrels last week, the American Petroleum Institute said yesterday.

The industry-funded API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department for its weekly survey.

–With assistance from Aaron Clark in New York. Editors: Richard Stubbe, Charlotte Porter

To contact the reporter on this story: Mark Shenk in New York at mshenk1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

Posted on November 16, 2011, in Canada, Energy, GEOPOLITICS, Oil, Political economy and tagged , , , , , , , , , . Bookmark the permalink. Comments Off on Oil in New York Surges Above $100 on Reversal of Seaway Pipeline.

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