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JP Morgan Hikes 2012 Crude Price Target To $110 On Seaway Reversal

Tyler Durden's picture




 

JPM, which has been stuck holding on to reflationary assets for months and months expecting a QE3 announcement which keeps on not coming as the market always frontruns it and makes any actual reflationary progress by the Fed impossible, couldn't wait to release today's crude price update following the reversal of the Seaway pipeline. The bottom line: JPM is lifting its WTI forecast to $110/bbl in 2012 and $118/bbl in 2013, and see the Brent-WTI spread narrowing to $5 and $3/bbl in those years, respectively. Previously WTI was seen as hitting $97.4 in 2011 and $114.25 in 2013. Consumers everywhere rejoice as they will have to take even more debt on (never to be repaid of course) in addition to never paying their mortgage payments. As noted earlier, now that WTI is well north of $102, kiss any deflation risks goodbye and with that the announcement of MBS LSAPs. At least until tomorrow's post 3 am European gap down, which will be fully filled and then some in the period between noon and 4pm.

Full note

Oil Markets Weekly: Seaway Reversal Lifts WTI Price Forecasts

 

The announced reversal of the Seaway pipeline by the second quarter of 2012 will help to further debottleneck the US Midwest, lowering the cost of moving Canadian sour crude and Bakken light sweet crude to US Gulf Coast refineries. As a result we are lifting our WTI forecast to $110/bbl in 2012 and $118/bbl in 2013, and see the Brent-WTI spread narrowing to $5 and $3/bbl in those years, respectively.

 

Assuming the deal is completed in December and gains regulatory approval, joint owners Enbridge and Enterprise have indicated that they will be able to reverse by the second quarter of 2012 at an initial flow rate of 150 kbd and, subject to shipper interest and reconfiguration, will be able to raise its capacity to around 400 kbd early in 2013. This is a material addition to takeaway volume for the region and should allow Canadian and Bakken crude oil production expansions to increase and should also lower the marginal cost of shipping oil from the WTI pricing point of Cushing, Oklahoma to the US Gulf Coast.

 

Pricing and allocation guidelines for the reversed pipeline have not yet been announced, and could take many forms. Pricing can vary from fixed cost, with some volume flexibility, to take or pay, or even some form of auctionbased pricing system for marginal barrels. A mixture of systems is not uncommon, but at the end of the day, pipelines serve a utility function and it is important for them to be competitive, run at a high utilization rate and to have a steady revenue stream. As such, pipelines are nearly always the low cost option for moving crude. As long as this is the case, it means that the Seaway pipeline will not (certainly at the outset) set the marginal cost of moving oil from Cushing to the Gulf Coast.

 

What it does is add to capacity and to displace the high cost option—trucking—from the route. The analysis in our August 25 Oil Market Weekly: Brent and WTI Forecasts and Risks suggested that up to 700 kbd of additional takeaway capacity, mostly rail, could be added by the end of 2012. We projected at the time that increase in capacity would narrow the Brent-WTI spread to around $10/bbl by the end of 2012, and to $7/bbl in 2013. That projection, which was seen as widely optimistic at the time, has not only been proved correct, but we now believe that the reversal of the Seaway pipeline will lower this spread more aggressively over the next two years.

 

In the summer, the wide Brent-WTI spread of roughly $25/bbl reflected the marginal cost of trucking crude from Cushing to the Gulf Coast. Although most of the movement away from the hub came from areas such as Eagle Ford, where the cost of transport was much lower, the economic price for the spread should always represent the marginal cost to move oil from the pricing point. The recent aggressive easing of the spread represents the partial transition of the marginal barrel from truck to rail. That shift does not happen overnight, but the potential for arbitraging the flows by putting oil into storage, means that the spread can lie between the two cost levels for a period of time. In 2012, while trucking will still be used to move oil from nonconnected fields to hubs, and even from fields close to the Gulf Coast, we see rail as setting the marginal price.

 

The cost of rail from Cushing to the Gulf Coast is broadly between $5 and $8/bbl depending on whether it is a unit train or manifest system. Pipelines could price competitively against these costs in an auction system next year, and would likely put downward pressure on rail and truck costs in 2013. If the market is anticipating that these costs will trend lower, WTI differentials to Gulf Coast crudes are likely to trade somewhere between cost options. Further, when considering the price relationship between Brent and WTI, we have to subtract a further $1.50 for the  transportation (theoretically at least) for Brent from the North Sea to the Gulf Coast. As such we think that next year we could see Brent-WTI trading around $3.50 to $6.50/bbl by the second quarter, and on the assumption that costs are driven downwards as Seaway expands and that more rail and possibly pipeline competition is available, those costs could fall to between $2 and $4/bbl. Ultimately, we see Brent- WTI trending towards a more stable relationship between $1 and $2/bbl in 2014.

 

This pricing shift does not change the global supply outlook, and therefore we have not adjusted our Dated Brent forecast for 2012 and 2013.  However, by virtue of a projected Brent-WTI spread in 2012 of $5/bbl and $3/bbl in 2013, we lift our WTI projections from a prior forecast of  $97.50/bbl in 2012 and $114.50/bbl in 2013 to $110/bbl and $118/bbl respectively. We have marked to market our 4Q2011 Brent forecast, but leave the forecast balance of the year unchanged at $115/bbl.

Phew: all that in 3 hours? Great job Larry Eagles!

 

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Wed, 11/16/2011 - 15:01 | 1883629 firstdivision
firstdivision's picture

Gold doesn't seem to be along for the ride today.  It's calling bullshit on today's rumors

Wed, 11/16/2011 - 15:09 | 1883667 BaBaBouy
BaBaBouy's picture

The Feckers already took Celente's Paper GOLD.

 

WTF is next???

 

Keep an eye on your Daughters...

Wed, 11/16/2011 - 15:43 | 1883837 ffart
ffart's picture

Borrowing infinite amounts of money at a negative interest rate and buying up futures contracts in a market where you set margin rates = PRICE STABILITY

Wed, 11/16/2011 - 14:59 | 1883631 LongBalls
LongBalls's picture

A.K.A... JP Morgan is telling you to dump your crude oil plays like a coffee stimulated morning movement. PUSH HARD MY FRIENDS.

Wed, 11/16/2011 - 15:26 | 1883697 SheepDog-One
SheepDog-One's picture

JP Morgue really going out on a limb here with their year price target on oil!

Adjusts it from present price to $9 dollars away! Gee thats a REAL BALLZY call there JP Morgue you bag of DICKS!

Wed, 11/16/2011 - 15:48 | 1883864 WonderDawg
WonderDawg's picture

So, oil at $70 soon then, eh?

Wed, 11/16/2011 - 15:05 | 1883636 GeneMarchbanks
GeneMarchbanks's picture

NTS: Sell WTI

BTW did someone order a bullshit ramp just now? Because it's here.

Wed, 11/16/2011 - 15:27 | 1883759 SheepDog-One
SheepDog-One's picture

And....its gone.

Wed, 11/16/2011 - 15:01 | 1883637 The Axe
The Axe's picture

meanwhile natural gas makes another 52 week low....

Wed, 11/16/2011 - 15:10 | 1883675 bob_dabolina
bob_dabolina's picture

Liquified Natural Gas is up handsomly

LNG is up 5.5% after being up as much as 8% earlier toay

Wed, 11/16/2011 - 15:20 | 1883721 cosmictrainwreck
cosmictrainwreck's picture

yeah, whazzup wit dat?! am buying "all the way to the bottom", but where the hell does turn? geez

Wed, 11/16/2011 - 15:07 | 1883662 0cz
0cz's picture

"and $118/bbl in 2013" 

Must be nice to have access to the same quality drugs that J.P.Morgan is on when they come up with these unrealistic projections. 

Wed, 11/16/2011 - 15:13 | 1883692 Uber Vandal
Uber Vandal's picture

Perhaps they are counting on the Iranian oil to flood the market after we bring Democracy back to them.

Wed, 11/16/2011 - 15:27 | 1883763 sabra1
sabra1's picture

iran supplies china's oil. US army in northern africa to starve china from all minerals. now, my avatar has sent troops to australia!

Wed, 11/16/2011 - 15:18 | 1883711 GeneMarchbanks
GeneMarchbanks's picture

Salvia divinorum + a dartboard = seeing the future (a few puncture wounds also)

Wed, 11/16/2011 - 15:11 | 1883684 SheepDog-One
SheepDog-One's picture

Little Miss Market basketcase manic/depressive jumps up and runs around the room again throwing glitter in the air! 

Dont worry, within a couple hours the meds will wear off and she'll be back huddled in the corner sobbing in despair.

Wed, 11/16/2011 - 15:13 | 1883686 slaughterer
slaughterer's picture

I cannot see how anyone can hold a long position overnight tonight with all of those French bond auctions bright and early tomorrow.   Word is that the London bond vigilantes are hungry for some French cut tomorrow.  

Wed, 11/16/2011 - 15:15 | 1883701 ziggy59
ziggy59's picture

Moody's take rating action on 12 German Landesbanken, banks listed below:

Dekabank Deutsche
Landesbank Hessen-Theuringen
Landesbank Saar
HSN Nordbank
Bayerishce Landesbank
Deutsche Hypothekenbank
Landesbank Baden-Wurttemberg
Bremer Landesbank Kreditanstalt
Norddeutsche Landesbank
Norddeutsche Landesbank Luxembourg
Saarlb
Westlb

Wed, 11/16/2011 - 15:17 | 1883702 CrashisOptimistic
CrashisOptimistic's picture

 

They have no clue.

1) Regulatory approval.  Why would it occur when it will increase the price of WTI?  Those commissioners are elected.

2) It's very very hard to get $200/barrel oil.  Economies and their oil consumption are destroyed before $200/barrel.  Low consumption would not pressure prices upward.  And of course, $200 / barrel means trucks can't buy fuel to bring food to shelves.  People who starve to death also lower consumption.

3) Brent is the price of oil.  It's within a few dollars of the other blends (excluding WTI), which are also the price of oil.  WTI is not Bakken (which isn't much anyway, only 300K bpd right now, and will only add another 100Kbpd by the time it hits its peak, soon (ignore all Bakken hype, horizontals die vertically)).  It is also not oil sands oil, which will be headed to Vancouver for shipping to China soon.  The "spread" is not important.  Oil (Brent and other blends) costing $110 is important.  

4) Greece burns 400K bpd and has to buy every barrel of it from Iran, because no one else will take their IOUs.  These are the realities that define the oncoming deaths.  Not WTI.

Wed, 11/16/2011 - 15:17 | 1883707 slaughterer
slaughterer's picture

Fed pumptards in full parade today.  Clearly, somebody did not send Waller the memo:

 


Fed's Waller says possible US growth in Q4 and Q1 2012 to be as high as 3.5% annual rate unless EU crisis escalates

Wed, 11/16/2011 - 15:20 | 1883722 SheepDog-One
SheepDog-One's picture

Possible US growth....well hell its also technically POSSIBLE for 5 oz gold bars to come shooting out of my ass as well...but Im not pricing it in.

Wed, 11/16/2011 - 15:18 | 1883712 0cz
0cz's picture

Meanwhile.... WTI just broke +$3/b for today.  One of the village idiots I was trying to inform about oil prices told me gasoline at the pump has went down so I am full of shit.  I went and talked to a local gas station owner and he told me that everyone is lowering their prices because they are on the brink of insolvency with more decreased consumption going into winter.  I expect to see at least 3/10 of the gasoline providers in my small town go out of business over the winter.  Possibly more.  High gasoline prices are horrible for most people.  However, not having access to gasoline period because it is impossible to make a profit on depression level consumption, which leads to reluctance to operate a fuel station in a location, is much much worse.

I'm not worried though.  I have been burning wood for heat for 5 years now and haven't bought a drop of gasoline or owned an automobile in 2 years.   

Wed, 11/16/2011 - 15:18 | 1883715 SheepDog-One
SheepDog-One's picture

Daily calls from the FED/ECB has now turned markets into boy who cried wolf syndrome...halflife of these rumors are now only minutes as no one believes any of the crap now.

Wed, 11/16/2011 - 15:20 | 1883724 sabra1
sabra1's picture

the only target i want to see, is that little laser dot on all of the crooks foreheads!

Wed, 11/16/2011 - 15:24 | 1883746 CrashisOptimistic
CrashisOptimistic's picture

 

I'd just like to ask everyone to step backwards and look at oil, from 2008's spike onward to this year's 2 seperate 100+ occasions, and truly try to convince themselves that supply scarcity is not explanatory.

There was no QE during the first spike in 2008.  Printing won't explain it.

Exxon and Chevron pure crude production is falling.  Ditto Total.  They have resorted to Barrels of Oil Equivalent to conceal it, adding in all liquids and natural gas.  It's all bullshit.  Crude is not coming out fo the ground at a pace 7 billion need it, and everyone who is rational knows it.

The party is over.  The cops are coming.  On horseback.  Four of them.

Wed, 11/16/2011 - 15:25 | 1883750 SheepDog-One
SheepDog-One's picture

Yep!

Wed, 11/16/2011 - 15:30 | 1883773 sdmjake
sdmjake's picture

"The party is over. The cops are coming. On horseback. Four of them."

I am going to be using that one. Good stuff!

Wed, 11/16/2011 - 15:37 | 1883801 0cz
0cz's picture

Not that I disagree with supply scarcity which is obviously upon us, I believe a huge part of the 2008 price explosion was instigated by the Dick Cheney "We have to increase our reserves because intel shows us the terrorizers want to bomb refineries in the Gulf" play.  I think that it was a 'shock test' to see how the masses in the United States will react to the inevitable supply shortage that we are now subject to. 

Wed, 11/16/2011 - 15:51 | 1883878 adr
adr's picture

Hmm the spike in oil had absolutely nothing to do with the repeal of Glass Stegal and the passing of the Commodity Futures Modernization Act along with regulation being recinded governing the practice of rolling contracts over and over into future contracts. The fact that millions of barrels are being held in storage tied to contracts owned by "investors" that will never take delivery of a single barrel holding supply that could lower the per barrel cost substantially has nothing to do with it either. Oh and big investment banks renting tankers to store oil off shore because there isn't space to store the oil anywhere else has nothing to do with the price manipulation. 92% of all oil contracts being traded by speculative investment firms has nothing to do with the rapidly increasing cost. The fact that the exploration crews of Exxon stated that it would be profitable to drill anywhere in the world at $40 a barrel in 2005 before th speculators drove th price to 3 times that. The fact that the same Exxon crews stated that at $60 a barrel it would be profitable to build driling stations on the ocean floor. The price also has nothing to do with Arab governments that based their entire economies on $60+ oil and made promises they couldn't keep when the market crash sent oil to $37. "Investors" knew this fact and could exploit it to drive the price higher. Oh and the fact that American gasoline consumption has fallen back to 1990's levels is completely irrelevant. Also that a 1% decline in American consuption eclipses any Asian growth. I've been folowing oil for a very long time and followed every stry during the bullshit run in oil from 2003-2008 becaue I put 30k+ miles on a car per year and gasoline in my largest expense outside my mortgage. Oil at $100 is bullshit and anyone with a brain should know it. The real market price based on fundamentals is below $40, there is no argument to the contrary.

Wed, 11/16/2011 - 16:13 | 1883936 CrashisOptimistic
CrashisOptimistic's picture

On the contrary, the first, oh, half of your commentary would not explain the price of Tapis, Brent, Oman, Libyan oil (in that time frame) or Russian Urals oil, none of which care one iota about the price of your supposedly manipulated (upward, as opposed to PPT downward) WTI.  Stop thinking of this matter as a financial entity.  It's not about trading.  It's about dying.

The second half of your commentary purposely denies scarcity in order to claim that lower consumption should yield lower price.  How can lower consumption yield lower price if the quantity of product is scarce?

And lastly, your core failure, is the fundamental misunderstanding that Demand is not synonomous with Consumption.  You can have low consumption with high demand.  People can want to burn more.  That's demand.  They can't do it because it's not there in sufficient quantity, driving the price up.

You resort to all sorts of contortions in thinking to avoid the crushing power of Occam's Razor, which in this context is . . . scarcity.

 

 

Wed, 11/16/2011 - 16:15 | 1884001 campag
campag's picture

agree with you price should be 50% lower and banksters/oil majors have kept it artificially high.

by the way there used to be an ADR on the oil floor in London - the same?

Wed, 11/16/2011 - 17:14 | 1884421 Flakmeister
Flakmeister's picture

Please reconcile your view with 2 facts:

1) Since 2005, world net exports are down ~10%

2) Since 2005, the net energy of "All Liquids" category which is confused by everyone to mean oil is flat.

 

Wed, 11/16/2011 - 15:34 | 1883785 Bansters-in-my-...
Bansters-in-my- feces's picture

I, feel.....the ......urge.......comming............over.............me...............

........FUCK you's J P Morgan Chase &Co,,,,,,,,

You's lying,thieving,cheating,Rothschilds cum swallowing sacks of shit.

Ps......FUCK YOU's....

Wed, 11/16/2011 - 15:34 | 1883790 adr
adr's picture

So Cushing is essentialy overflowing with oil and reversing the pipeline will make it cheaper to ship oil to refineries sending more supply to the market, and that means oil should be trading higher? Ahh bizzaro land, got to love it.

Wed, 11/16/2011 - 15:59 | 1883874 haskelslocal
haskelslocal's picture

Trading higher because Brent IS the global price of oil. WTI is global price less marginal transporation costs, which have historically been either truck or rail and is now expanding to pipeline. But after oil is refined, those transporation costs are added back so that oil shipped from the North Sea is relatively the same price as that coming from Cushing + those high trasportation costs.

Anticipation of a lower cost transportation source such as the Seaway pipeline for 2012 puts pressure on trucking and rail companies to reduce costs today to contract and keep clients.

What this article hasn't leveraged yet is this. If U.S. demand is assumed constant and oil is no longer shipped FROM the Gulf to Cushing but instead is shipped FROM Canada to Cushing, then that means there will be a net reduction in oil imports from foreign providers other than Canadians. (who are not considered so foreign in propaganda speak) If this is true, we'll hear about it on somebody's campaign trail or we Won't hear about Drill Drill Drill on the other...     

Wed, 11/16/2011 - 16:19 | 1883970 CrashisOptimistic
CrashisOptimistic's picture

It's not overflowing with oil.

It's overflowing with WTI.  Brent is oil.  Brent defines the price.

If you bring WTI to the coast, then it becomes more valuable because more markets can demand it, not just a handful of Midwest refineries.  Once it gets to the coast, it can ship to anywhere, and thus can command a higher price for the oil people extracting it from the ground.

Does this mean the global supply is increased from what it is now?  Yes, but . . . it's only 150K bpd in that pipeline.  That's all.  The rest is hand waving predictions of more and more.  That's all bullshit.  The 5%/yr  production decline in presently producing West Texas fields will lose 150K and much more in that year it takes to start the pipeline reversal.  So . . . supply increase?  Nope.  

When you see quotes of supply increase from ANYONE, look real careful at what increased.  It won't be crude.  It will be "all liquids".  They don't have crude's BTUs.

As for Canada, we are maybe only mere DAYS from hearing that China is funding a pipeline to the Vancouver coast.  That will be that for that product having only one customer.  Extra demand . . . higher price for Edmonton black flow.

Wed, 11/16/2011 - 15:36 | 1883797 PicassoInActions
PicassoInActions's picture

if i am  correct, the jopamites bought oil last time at 105, now they want to get rid of it. They had to raise forecast. 

ANd one thing i don't get it... so the reversal will be in 2012 but we have to pay today those prices.

SHould publicly hang all assholes.

Wed, 11/16/2011 - 15:58 | 1883916 Hannibal
Hannibal's picture

Surpised everthing is a scam by scum? FUCK JPMORGAN et al

Wed, 11/16/2011 - 16:08 | 1883969 campag
campag's picture

first fundemental story to move the oil market in what seems like years.

shame constant bearish news from ZH has no effect on stock prices.  

Wed, 11/16/2011 - 16:21 | 1884027 slewie the pi-rat
slewie the pi-rat's picture

52 weeks 11 hours

happy zH-b-day!

Wed, 11/16/2011 - 16:16 | 1884002 slewie the pi-rat
slewie the pi-rat's picture

 <=== buy WTI and short the ETFs?

 <=== buy PMs and short the morgue, BiCheZ!

Wed, 11/16/2011 - 16:20 | 1884020 CrashisOptimistic
CrashisOptimistic's picture

 

Again, oil is not about trading.

It's about dying.

Wed, 11/16/2011 - 16:23 | 1884046 slewie the pi-rat
slewie the pi-rat's picture

neither are PMs about trading

they are about living

Wed, 11/16/2011 - 16:25 | 1884056 surf0766
surf0766's picture

what cause the dump in the past 20 minutes?

Wed, 11/16/2011 - 16:41 | 1884165 Quadlet
Quadlet's picture

What is going on with PSLV?  Is someone unwinding?  Is the trust issuing more shares?

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