Streetwise Professor

November 16, 2011

Dr. Coase Has Answered the Phone

Filed under: Economics,Energy — The Professor @ 8:45 am

Free money will not stay on the table for long.  Earlier this year I wrote about the value that was available for the taking by reversing the flow of the Seaway Pipeline connecting Cushing, OK and the Gulf.  ConocoPhillips (COP) owned half of the pipeline, and its refinery operations benefited from the low price of crude in the Midcon due to the backup of Canadian and Bakken crude in Cushing. Hence it balked at reversal. But the differential between the Cushing price and the price in the Gulf meant that it was possible to make COP a deal that more than compensated for any loss in refining profits resulting from a reversal of Seaway and the resulting increase in Midcon crude prices.

Well, that deal has just been done.  Enbridge has bought COP’s 50 percent share of Seaway, and immediately after that announcement Enbridge and Enterprise, the owner of the other 50 percent, announced that they will reverse the pipeline.  150K bbl will flow by the 2Q 2012, and 400K by 2013.

The result?: an immediate compression of the Brent-WTI spread.  WTI nearby is up $2.40/bbl, Brent down about $1.60..

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    Koch bros. may have been tipped off about MF Global collapse. But hey, let’s have another post about Russia!

    Comment by Mr. X — November 17, 2011 @ 4:04 pm

    WSJ front page, of course, misses the point until the very end.

    Comment by DrD — November 17, 2011 @ 10:19 pm

  3. The closing of the wti-brent spread was clear since 24-Oct when CL contract moved into backwardation. The news caught up to the market only a few weeks later when the major move was done…

    Comment by Gilad — November 19, 2011 @ 11:40 am

  4. […] run to the coast rather than away, bringing more of the lower-priced WTI crude to refineries (see Streetwise Professor). This entry was posted in Directors' Comments. Bookmark the permalink. ← Test […]

    Pingback by Gasoline & Oil Prices: The Rest of the Story | WKU Center for Applied Economics — December 2, 2011 @ 9:18 am

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