Oil pipeline reversal gives Gulf Coast opportunities

We saw a big drop in the price of heating oil as traders believe that the influx of crude will be released in the heart of heating season and ahead of the summer driving season. Reuters News said, "Conoco had been believed to be standing in the way of the Seaway reversal to protect its refining profits in the Midwest, but its decision to sell out put the line into play. Then came the apparent success of the Enbridge and Enterprise Products Partners' Wrangler pipeline proposal, an 800,000 bpd behemoth that seems to have garnered enough support to enter service by 2013. But now the schedule has moved up. With Seaway possibly entering limited reversed service by mid-2012, the risk that refinery maintenance periods will lead to a massive buildup of crude that will be difficult to run down in the summer has faded. Conoco, for its part, seems to have done very well. The major, which is breaking itself apart after a decade of deal making, will get $1.15 billion from Enbridge for its interest in Seaway, a huge sum for a humdrum logistics asset."

At the same time there are other plans to ease the congestion in the now suddenly over crowded U.S. pipeline system. New pipelines and rail lines are being built not only to ease the congestion in Cushing, but to move oil all over the country. The Energy Information Agency reported that figures from the Association of American Railroads (AAR) shows that tracks combined rail movements of oil and refined petroleum products rose in the first ten months of 2011 by nearly 300,000 tank cars, up 9.1% from the same period in 2010, which is much stronger than the 1.8% increase for all railroad cargo combined during the same period.

At the same time they report strong demand for tank cars in North Dakota because of the boom of shale gas production from the Bakken field. The Energy Information Agency (EIA) says that North Dakota oil production has soared from about 343,000 barrels per day (bbl/d) in January to a record high of about 464,000 bbl/d in September, sourcing North Dakota's Department of Minerals Resources.

Railroads are desperately trying to build track to keep up with the demand. The EIA says that the DMR expects North Dakota will pass California during the second quarter of next year to become the third biggest oil-producing state. Burlington Northern Santa Fe (BNSF) and other railway companies are building or expanding terminals and adding tank cars to transport North Dakota's growing oil supplies to Gulf Coast refineries. On Nov. 7, the first crude oil unit train on the Bakken Oil Express, a newly constructed rail hub near Dickinson, North Dakota, departed via the BNSF Railway carrying its first shipment, 70,000 barrels of crude oil destined for St. James, La. The Bakken Oil Express receives Bakken-area crude oil by both truck and pipeline and has a current takeaway capacity of 100,000 bbl/d. The Bakken Oil Express already is planning a second phase of construction that would significantly expand its takeaway capacity to more than 250,000 bbl/d.

Today in the oil patch we are focused on Europe once again!

Phil Flynn is senior energy analyst for PFGBest Research and a Fox Business Network contributor. He can be reached at (800) 935-6487 or at pflynn@pfgbest.com.

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About the Author
Phil Flynn

Senior energy analyst at The PRICE Futures Group and a Fox Business Network contributor. He is one of the world's leading market analysts, providing individual investors, professional traders, and institutions with up-to-the-minute investment and risk management insight into global petroleum, gasoline, and energy markets. His precise and timely forecasts have come to be in great demand by industry and media worldwide and his impressive career goes back almost three decades, gaining attention with his market calls and energetic personality as writer of The Energy Report. You can contact Phil by phone at (888) 264-5665 or by email at pflynn@pricegroup.com. Learn even more on our website at www.pricegroup.com.


Futures and options trading involves substantial risk of loss and may not be suitable for everyone. The information presented by The PRICE Futures Group is from sources believed to be reliable and all information reported is subject to change without notice.

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