Seaway Oil Pipeline Flow Cut Boosts WTI’s Discount to Brent

Enterprise Products Partners LP cut oil deliveries on its expanded Seaway Pipeline to less than half of capacity, widening the spread between benchmark U.S. and European crudes by the most in almost seven months.

Enterprise limited deliveries to 175,000 barrels a day because of “unforeseen constraints in outbound takeaway” at the Jones Creek terminal, according to a notice to shippers yesterday. Houston-based Enterprise and its partner, Enbridge Inc., completed an expansion of Seaway on Jan. 11 that boosted capacity to 400,000 barrels a day. The 500-mile (805-kilometer) line runs to Freeport, Texas, from Cushing, Oklahoma, the delivery point for West Texas Intermediate crude futures.

The difference between March WTI on the New York Mercantile Exchange and Brent crude traded on the ICE Futures Europe exchange in London increased by $1.83 a barrel yesterday to $17.57, the most since June 26. The spread narrowed 60 cents to $16.97 today.

“Now the question is how long it’s going to take before the takeaway capacity gets cleared up,” Stephen Schork, the president of Schork Group Inc. in Villanova, Pennsylvania, said by phone yesterday.

A reduction in flows along the Seaway pipeline affects the spread between WTI and Brent because it limits the amount of oil that can leave Cushing, America’s biggest storage hub, potentially weakening the price of Nymex crude relative to the European grade. A glut at Cushing pushed WTI to an average discount of $17.47 a barrel below Brent last year compared with a premium of about 95 cents in the 10 years through 2010. A resumption in flows could cause the spread to narrow.

Unforeseen Circumstances

“The Jones Creek delivery point has reached maximum capacity,” Enterprise said in the notice to shippers. “As a result Seaway nominations to Jones Creek are being reduced based on total deliveries of 175,000 barrels a day.”

CenterPoint Energy Inc., which supplies power to the Jones Creek station, had no disruption of services, Alicia Dixon, a Houston-based spokeswoman, said by phone yesterday. Rick Rainey, a spokesman for Enterprise, wasn’t available for comment when called on his mobile phone out of normal business hours.

Inventories at Cushing climbed to a record 51.9 million barrels on Jan. 11, according to the Energy Information Administration, the statistical arm of the Energy Department.

Cushing Glut

“What you’re seeing now is, here we go again, the template is set for the glut up in Cushing to blow out again,” Schork said.

WTI’s discount may widen as the volume of crude that can be shipped from Cushing is constrained by the amount that can be transferred to Enterprise’s storage terminal in southeast Houston, known as ECHO, where capacity is “limited,” according to Olivier Jakob, managing director of consultants Petromatrix GmbH in Zug, Switzerland.

“The market however decided to take at face value the Seaway capacity number but the reality check came yesterday when Seaway announced that due to limited take away capacity at Jones Creek it was limiting deliveries to 175,000 barrels a day, or only 25,000 higher than the capacity of 2012,” Jakob said.

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