Brent Premium to WTI to Fall This Year, Morgan Stanley Says

Brent oil’s premium to West Texas Intermediate will fall to a range of $6 to $12 a barrel by the end of this year as new pipeline capacity starts to reduce a glut at Cushing, Oklahoma, Morgan Stanley said.

The spread will narrow from a range of $15 to $19 a barrel in the three months through March, Hussein Allidina, an analyst at Morgan Stanley in New York, said in a report e-mailed today. The average gap is forecast at $16.50 this quarter, shrinking to $11.50 in the three months ending December, the note showed.

Brent’s premium to WTI will drop after the Keystone XL pipeline starts operating, bringing Canadian tar-sands crude to the U.S. Gulf Coast, according to Allidina. The expansion on Jan. 11 of the Seaway pipeline operated by Enterprise Products Partners LP and Enbridge Inc., which can carry as much as 400,000 barrels a day of crude from Cushing to the Gulf Coast, won’t clear the glut, he said.

“Fears of a material narrowing are overstated,” Allidina said. “New exit capacity out of Cushing and West Texas will help ease pressure on Mid-continent crude balances in the first half of 2013, but will prove insufficient to clear the Cushing bottleneck.”

Front-month Brent futures in London traded at a premium of $15.63 a barrel to New York oil at 3:21 p.m. Singapore time. The spread has averaged $17.31 so far this year.

WTI declined 7.1 percent in 2012 as the U.S. shale boom deepened the glut at Cushing, the country’s largest storage hub and the delivery point for New York futures. That left it at an average discount of $17.47 a barrel to Brent last year, compared with a premium of about 7 cents in the five years through 2010.

Keystone XL

Nebraska Governor Dave Heineman approved TransCanada Corp.’s revised route for the Keystone XL pipeline, clearing the way for a final decision from U.S. regulators on the project, according to a letter he sent yesterday to President Barack Obama and Secretary of State Hillary Clinton.

The new route avoids Nebraska’s Sand Hills, an environmentally sensitive region overlaying the Ogallala aquifer, the state’s main source of groundwater, the letter shows. The pipeline will still cross the aquifer, though in a less sensitive area.

Before it's here, it's on the Bloomberg Terminal.