As WTI Stockpiles And Spreads Hit Record, ConocoPhillips Obstinately Refuses To Reverse Seaway Pipeline

Tyler Durden's picture

Today, WTI spreads continued their blow out, making the lives of all Goldman clients who expect the spread to collapse a living hell (with ever louder rumors of pending or already transpired energy fund blow ups). The spread between April-delivery WTI futures and Brent, the basis for European and West African crudes, widened $1.63 to $15.70 a barrel at 12:16 p.m. in New York. And since in addition to Brent, there are roughly 100 other grades, here is how WTI has been trading compared to some of the more illiquid varieties: Light Louisiana Sweet premium increased 30 cents to a
record $20.10 while Heavy Louisiana Sweet premium widened 30 cents to $20. Mars Blend’s
premium to WTI strengthened 40 cents to $14 a barrel, while
Poseidon increased 30 cents to $14.30 over the benchmark. Southern Green Canyon’s premium widened 40 cents to $13.
Thunder Horse’s premium to WTI strengthened 5 cents to $19.20.
West Texas Sour’s discount narrowed 35 cents to $6.40. Syncrude’s premium widened 50 cents to $8.50 a barrel.
The discount for Western Canada Select widened $1.25 a
barrel to $21 a barrel. Yet despite all these divergence dynamics, it is the WTI that is of critical importance due to its prevailing liquidity and utilization in the US. Luckily for Ben, the WTI glut just hit a record, allowing the Fed to continue pretending that the real price of oil is not well over $100. Per Bloomberg: "Stockpiles at Cushing, the delivery point for futures traded on the New York Mercantile Exchange, rose in the week ended Jan. 28 to 38.3 million barrels, according to the Energy Department. That was the highest level in records begun in 2004. Last week TransCanada Corp. started deliveries to the hub from its Keystone pipeline, which connects Alberta and Cushing." What is more interesting is recent speculation that ConocoPhillips may reverse its Seaway pipeline to relieve the Cushing excess. This would make economic sense for Conoco, yet for some odd reason the company refuses to proceed.

Per Bloomberg:

ConocoPhillips isn’t interested in reversing the Seaway pipeline that brings crude from the U.S. Gulf Coast to the fuel hub in Cushing, Oklahoma, where inventories of crude oil reached a record high last month.

“We don’t really think that’s in our interest because we need more crude in the area” to supply the company’s refineries in the Midcontinent, Jim Mulva, ConocoPhillips’s chief executive officer, said during a conference call hosted by ISI Group today.

“A reversal would send up to 350,000 barrels a day of crude from Cushing directly to Houston, significantly releasing pressure on the Cushing complex,” said JBC Energy GmbH, a Vienna-based researcher.

The 530-mile (853-kilometer) Seaway pipeline, operated by Enterprise Products Partners LP, carries crude northbound from Freeport, Texas, to Cushing. It also supplies refineries in the Houston area and has a usable storage capacity of 3.4 million barrels, according to the company’s website.

Rick Rainey, a spokesman for Enterprise, said in an e-mail that ConocoPhillips and Enterprise would have to agree to reverse the pipeline. Seaway’s former operator, Teppco Partners LP, said in 2007 it would consider a reversal.

Without getting conspiratorial, there is only one entity that would benefit from a market mispricing and a supply glut keeping prices lower, thereby not spooking US drivers into seeing surging gas prices. This is certainly a story worth following: should Conoco do the right thing for its shareholders and reverse Seaway, look for the various WTI spreads to collapse overnight.

And since the US now lives in a mispriced energy world too, below is a chart of gasoline prices in the EU, where gas is about 100% more expensive than in the US to begin with. Look for transportations protests in Europe shortly, as drivers say "basta a Bernank."

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FrankIvy's picture

Only one entity would benefit?  Not sure what would define that.

I'd say any entity that benefits from continued sheeple compliance and consumption would benefit.  Short term.

cougar_w's picture

C-P will reverse the pipeline once they have all their European-flagged oil tankers lined up at the terminus ready to onload WTI on the cheap.

whatsinaname's picture

Maybe oil companies want to do harakiri just like the nat gas cos are doing unto each other leading to UNG's demise.

chump666's picture

Perfect trade coming, sell on Brent and Buy on WTI.

Billon + profit reap.  That's life.


cougar_w's picture

I knew it. Blame Canada.

DeeDeeTwo's picture

Of course, it's a conspiracy, baby. Never mundane market factors like a new Canadian pipeline pumping 600,000 b/d into Cushing, or the fact it will take several months to line up rail cars to disperse the crude to the coast and work off that $10 premium, or the fact that you don't just flick a switch and "reverse a pipeline". Market forces take months, thus the contango.

As usual ZH is on top of a story, but ya gotta go elsewhere for the hard facts, baby. Hey, we got Goldman and the Fed in this one, but what... no gold angle?





buzzsaw99's picture

If wti goes over $100/bbl then questions start being asked up on crapitol hill. That's why.

CrashisOptimistic's picture

If you reverse the pipeline, the imports arriving in the Gulf (and pumping in the Gulf) don't get in and America won't have the oil it needs.  

Simple as that.

This is all part of the process of devastation.  The pipelines flow northward for a reason.  The reason isn't new.

And btw, before people start worshiping at the altar of Brent, be aware that the North Sea's production is cratering, just like Texas has.

And further, tra la tra la, China's consumption last year was just announced as increasing 18%.

Flakmeister's picture

Welcome to the shenanigans of the Plateau....

Remember that what is piling up in Cushing is crappy canadian crude, which refiners can deal with and have fatter margins. No one is buying WTI because there is hardly any of it ~300,000 bpd, and there are more profitable alternatives.  

$4 barrel to ship by train from Cushing to LOOP, then about 8 to ship it anywhere else. The convergence trade will start not be short WTI contracts.

CrashisOptimistic's picture

I was looking at the Burlington Northern routes last night, and guess what Bill Gates' largest non MSFT stock holding is.

Canadian National Railroad.  It just happens to go through the northern part of the Bakken.

FrankIvy's picture

This will get more interesting.

Peak Oil is upon us quicker than I would have liked.

Throw in some MidEast unrest and we can go from 4 bucks a gallon to 10 bucks a gallon to here's your 5 gallon a week ration in very short order.

Sutton's picture

Said months ago  that Ben and Co. could use SPR to fight the one thing($150 oil) that caused them  to raise rates in 2008, mortally wounding much of Wall St.

steve from virginia's picture

This isn't new: if prices are high the refiners get squeezed and won't buy oil at any price.

This is structural and cannot be solved outside of lower prices.

FrankIvy's picture

Steve wrote: "This isn't new: if prices are high the refiners get squeezed and won't buy oil at any price."

Help me out here Steve.  My basic understanding of markets would suggest that the refiners, in response to higher input costs, will increase the cost of their output.  Is that not how you see it?

Of course, at some point the .gov will step in and fix prices, providing a "subsidy" either directly to refiners or to end users (less likely) or whatever.


Till then, distallates and such go to La Lune.

CrashisOptimistic's picture

Be aware there are a ton of refineries on the Gulf coast.

Don't celebrate WTI being lower so refineries get to hold gasoline down.  Sorry sports fans.  Those Gulf coast refineries are using imports as input.  The price is $104.  They ain't selling the gasoline for less.  

This Brent spread isn't going to hold gasoline down.

whatsinaname's picture

Agree 100%. The price at pump reflects Brent pricing not WTI. So the consumer is getting walloped while Ben pretends there is no inflation.

New World Chaos's picture

When Saudi Arabia falls to the Islamists, the puppetmasters will take WTI to $200 with Brent at $175.  That way, the talking heads can blame all the price increases on the terrorists while the real terrorists print at warp speed.

disabledvet's picture

"Drain the reserves and send them to Asia."  That would be interesting.  So "who get's the food then"?  In other words "isn't it in the interest of the agri-business complex to have the oil cut off"?  In that sense I agree with ConocoPhillips since should there be a food crisis globally and even in the United States itself that indeed would be a serious demand impairment to their oil product.  What's actually wrong with horses and buggies, though, right?

bob_dabolina's picture

I think Obama should close all the US gas/ oil production and refining and invest in Americas future by subsidizing the research of black magic as an alternative source of energy.

This is a good way to strenghten Americas employment and further aid in lowering energy prices.

And magic doesn't hurt the enviroment and cause global warming so Al Gore will love it.

Downtoolong's picture

Whether WTI should really be $100 or $80, the most significant thing about this whole episode is that it shows how, for an extended period of time, the WTI futures price can fail miserably as a benchmark price index for North America. That’s not good for producers, consumers, hedgers or investors who in some cases have already walked away from the WTI futures market. Case in point from Wikipedia:


On April 13, 2007, the now-defunct Lehman Brothers released a study which claimed that WTI Crude at Cushing is no longer an accurate gauge of world oil prices. A large stockpile of oil at the facility (mainly due to a Valero refinery shutdown) has caused prices to be artificially depressed at the Cushing pricing point. This gap relative to world markets increased in early 2009 to nearly $12 per barrel at times, causing Saudi Arabia, a leading oil exporter and OPEC member, to announce an end to benchmarking its own oil prices to WTI.


Clearly an oil price index that has a basis spread which fluctuates more than 10% of the average price of oil in a region is a poor choice for a benchmark, other than tracking idiots who bought into the USO ETF.  



trav7777's picture

somebody should explain physical/paper divergence to...somebody.  I'm fairly confident that there are other essentially tracking ETFs on other commodities.

WTI can get sold to 0 and it won't change real oil prices.  Several of the trolls around here might be wise to bear this in mind

lizzy36's picture

Unless one believes that that cheap WTI benefits COP's mid-continent refineries.

sparetime's picture

Prices are artificially depressed in Cushing and Conoco chooses to send oil into a glutted storage situation as opposed to charging maybe 3 or 4 times the value of the transportation and reverse the pipeline? Bull manure! You don't ship something 500 miles when you can sell it nearby for much much more.

r101958's picture

WTI is not is manipulated. CPI is figured using WTI numbers...and is $100+/bbl oil politically acceptable for the current gov't? ....don't think so. Pretty soon there won't be much they can do about it.

CrashisOptimistic's picture

CPI uses gasoline, not WTI.  I looked.

terranstyler's picture

I simply can't imagine that they start manipulating oil.

Manipulating the PMs is one thing, but suppressing WTI to say crude is cheap is like a slap in the face of the public. Most people in the markets are stupid, but even stupidity has bounds...

chump666's picture

in less than maybe 12hrs, Iran will send warships into the suez canal.

no manipulation, study the oil crisis in the 1970's.  this is no different Iran wields more power than Israel re: oil.

should be a spike on the WTI and a divergence narrow with Brent.

Not a god damn thing Washington can do, Saudi Arabia will be smiling as they subsidies food in Saudi via oil sales.

Stocks should get slaughtered on all this

prophet's picture

Iran is likely testing Egypt more than it is  provoking Israel

RobotTrader's picture

Refinery margins have been exploding.

After taking it up the arse for 3 years, Tesoro, Valero, and Marathon are not about to give up the fat juice they are enjoying at the moment.

Gasoline prices in L.A. have actually been creeping up, when I expected a decline back to $3.00/gal.

So far, it is not slowing down the retailers.

Perhaps if we launch into "Zimbabwe Mode", retailers will have their best year ever in 2011 as everyone starts stocking up before prices get out of reach in 2012.

Downtoolong's picture

Today, WTI spreads continued their blow out, making the lives of all Goldman clients who expect the spread to collapse a living hell.


Maybe it's Conoco orchestrating the squeeze on the other side of Goldman's spread trade. That could make them a lot more money in the short run than reversing the pipeline flow and charging a high transport fee. They could always do that anyway after Goldman and their hedge fund clients cave in. Personally, I'd love to see it go down that way.



Monkey Craig's picture

I read the article and found it short on details. Let's not forget that Conoco is the second largest US refiner, so perhaps a glut at the Cushing helps their margins? Also, Conoco has a JV with Cenovus , and this may play a role in their strategy.

Either way, Tyler , thanks for the article!

gookempucky's picture


OIL OIL all over the place-price wise anyhow, The biggest question? concerning the spread WTI/BRENT must consider exactly what is incorporated into the price equations. The WTI transport fees run about $3.90 bbl fob chicago and for the reversal of the seaway pipeline is like slamming your car into reverse while going 70mph-it just doesnt happen-empty yes but with a full stream=sorry in other words if it isnt in the pipeline schedule good luck. Besides that Cushing is full... Your Brent/ASCI price includes demurrage charges, insurance(especially with the ME on fire rates have doubled) transportation losse's, commisions, delay days, charter fees,etc. adds to the cost. Dont look for Brent to go down as current price reflects 4 months out.. Brent  has now become the worlds reserve price for oil--kinda what the dahla used to be.

Party on


 Below are cargo loads that meet minimum tonnage in order to set price N Sea

Different parts of the world have many different minimums.


Grade Pricing basis Loading port Standard cargo


Forties fob Hound Point 600,000

Brent fob Sullom Voe 600,000

Oseberg fob Sture terminal 600,000

Ekofisk fob Teesside 600,000

Flotta fob Flotta terminal 650,000

Azeri cif Augusta Ceyhan 600,000

CPC Blend cif Augusta CPC terminal 600,000

Siberian Light cif Augusta Tuapse 550,000

Urals Med cif Augusta Novorossiysk or Yuzhny 600,000

Urals NW Europe cif Rotterdam Primorsk or Murmansk 730,000

Ben Probanke's picture

the main looser in this are.... the Goldman Sachs Commodity Index and the DJ-UBS Commodity Index

campag's picture

Any government with a brain and excess supply of $,s would be adding this price suppressed crude to the SPR. (especially with recent Middle East shit). 

Expect an announcement any day soon from the Chinese - they will figure it out !

zhandax's picture

Well, we have half of those requirements right here on the east coast of the US, my friend!

campag's picture

anyone trading on the ICE platform noticed that the market has the ability to sniff out stop loss orders.

Can certain users view stop loss orders , the exchange says no security prevents this but.....

just another conspiracy theory...?????

Zodiac's picture

If Cushing were some hick trading hub for crude oil then no one would care.  However, it is the delivery site for the most widely traded oil contract in the world.  

ConPhil wont reverse the pipeline because it would be singlehandedly blamed and scapegoated by the Obama admin and ignorant liberals for the sharp increase in oil prices that go into the various indicies.  I can hear it now: CONOCO PHILLIPS MOVES OIL TO GULF COAST RATHER THAN SUPPLYING MID-CON REFINERIES: Causes $15 spike in WTI: WTI now trading in line with European Brent

Sounds like a perfect exuse to further demogogue the oil companies.



Zodiac's picture

Further comments to my last post,

1.  the crude oils along the Gulf Coast are priced correctly, consistent with world market prices.  Oil tankers with imported oil would be diverted to other international destinations if the various crude oils produced in the Gulf were selling at their historical deltas versus WTI.

2.  the isolation of Cushing, the vagaries of the storage situation there, and the fact that oil at Cushing does not compete (in terms of physical delivery) with Gulf Coast crudes makes Cushing irrelevant

3.  CME/NYMEX should consider changing the physical delivery point from Cushing to a location where foreign and domestic supplies compete and where there is more refining capacity (e.g. the Gulf Coast).


campag's picture

point 3 of your post -Nymex have been talking about this for years to no effect. I think most of storage was owned by BP (recently sold but they now lease storage) don't think the oil companies want to change they can fully exploit situations like this at our cost.

watch April/May WTI spread this will show if things are changing . its closed in 40cents this morning already.