Seaway crude offered on Gulf Coast
BP has made the first offer to sell crude oil on the U.S. Gulf Coast from the glutted Cushing, Okla., trading hub via the reversed Seaway pipeline, due to start next week, raising hope for stronger prices for Canadian and U.S. crudes, traders and brokers said on Friday.
Two 500,000-barrel cargoes of U.S. sweet domestic crude were offered in the cash crude market at a 50-cents per barrel discount to the price of global benchmark Brent crude, market sources said. BP declined to comment.
Linking the price to Brent underlines the irrelevance recently of West Texas Intermediate futures for pricing crude on the Gulf Coast.
Details of the offers were unclear, and information about them was still unfolding. One question was whether they were for June or July delivery or both.
Surging production from Canadian oilsands and newer U.S. shale fields has flooded into Cushing, the delivery point for the New York Mercantile Exchange’s WTI futures contract, with no outlets to the Gulf Coast.
The result, particularly in the past 18 months, has been steeply discounted WTI futures prices, against which Canadian and U.S. crudes price.
The crude being offered was for delivery in Texas at Jones Creek, the terminus of Seaway on the Gulf Coast, or at Texas City or “some other Houston area discharge port,” via pipeline links, sources said. Seaway branches to Texas City.
Traders and brokers have been waiting for outlets to open from Cushing to the Gulf Coast, historically the source not the destination of pipeline crude at Cushing. The idea is WTI prices will strengthen against Brent when WTI can reach the sea and world markets.
“Increasing the competition between those U.S. and Canadian supplies with other grades of international crudes in the Gulf will make the WTI contract more viable again and narrow the Brent-wti arbitrage,” said Tom Bentz, director of BNP Paribas Commodity Futures Inc. in New York.
Crude contracts on the Gulf Coast price against WTI, but the premiums are determined by the Wti-brent spread. The biggest concentration of U.S. refining is on the Gulf Coast and has been largely dependent on imported crudes.
The clear attraction of WTI to Gulf Coast refiners is that, because of inability to get crude to the Gulf Coast from Cushing until now, WTI has been steeply discounted to Brent. The spread settled Friday at $16.13 per barrel in favour of Brent.