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Shell, BP Gain From U.S. Seaway Oil Pipeline Reversal, RBC Says

Royal Dutch Shell Plc and BP Plc will benefit from a plan to reverse the direction of the Seaway pipeline in the U.S. and pump crude to the Gulf of Mexico coast, RBC Capital Markets said.

Shell and BP will each pump about 13 percent of their total oil output in North America through the pipeline, said Peter Hutton, a London-based analyst at RBC. The reversal will ease the glut of West Texas Intermediate oil at the U.S. benchmark’s delivery hub at Cushing, Oklahoma, and narrow the spread with Brent oil. That will boost adjusted earnings for Shell and BP by 3.2 percent and 3 percent respectively, Hutton said.

“Market reaction at Shell should be more positive,” Hutton wrote today in an e-mailed report. BP “used to produce a higher proportion of liquids in North America, but the greater decline in U.S. Gulf of Mexico, and the expansion by Shell of oil sands production, has closed the gap.”

Enbridge Inc. yesterday agreed to pay $1.15 billion for ConocoPhillips’s share of a north-flowing pipeline that extends from Houston-area refineries in the Gulf of Mexico to Cushing. Together with Enterprise Products Partners LP, the line’s other owner, the companies will reverse the flow.

WTI oil’s discount to Brent narrowed to the smallest margin in eight months after the Seaway pipeline reversal plan was announced.

RBC increased its forecasts for WTI to $93.50 a barrel from $91.50 in 2011 and to $100 a barrel from $90 in 2012. It left its forecasts for Brent oil unchanged at $109.50 and $109 respectively.

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