Forex Flash: WTI US capacity to increase substantially following Seaway pipeline – Goldman Sachs

FXstreet.com (Barcelona) - WTI prices have traded at an increasing discount to Brent as the barrels at Cushing await the development of excess capacity to transport them to the US Gulf Coast. According to the Commodities Research Team at Goldman Sachs, “We still expect this excess capacity will be achieved when the Seaway pipeline ramps up from its current capacity of 150 thousand b/d to its full capacity of 400 thousand b/d in early 2013.” In the meantime, the addition of substantial rail loading and unloading capacity in 2012 has created excess capacity to move Bakken crude to the coasts.

“With Bakken pricing above WTI, we would expect less Bakken crude to flow south into Cushing, which should help to keep Cushing inventories from building too much as BP’s Whiting refinery undergoes conversion for more heavy oil refining. Net, we expect the WTI-Brent spread to remain volatile in 2012, but to narrow to -$4/bbl in early 2013 as the Seaway pipeline reaches its full capacity.” the Team adds.

As the US Gulf Coast becomes saturated with light-sweet crude in 2H13, however, “we expect LLS will need to trade at a $2.00/bbl discount to Brent in order to direct increasing amounts of Bakken crude by rail to the US East Coast instead of to the US Gulf Coast. This will likely cause WTI-Brent to widen to -$6/bbl by the end of 2013.” they warn.

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