--Pipeline to start shipping crude during weekend
--Cushing oil inventory at historic high
--More pipelines needed to transport growing North American oil supply
(Updates with details, refiner quote in seventh paragraph and analyst quote in ninth paragraph)
Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) completed the much awaited reversal of the Seaway pipeline Thursday, setting the stage for crude oil to flow from a critical storage hub to the Gulf Coast refining hub.
With the technical aspects now complete, the companies will start shipping oil this weekend to the Gulf Coast from Cushing, Okla., where the recent boom in domestic oil production has brought inventories to historic highs. The wave of new oil, together with a lack of ways to bring it out of Cushing, had brought benchmark U.S. oil prices as much as $20 below European benchmark Brent.
A record high of 45 million barrels of commercial crude oil was stored in the tanks at Cushing the week ended May 11, up 12% from the year before, according to the U.S. Energy Information Administration. Recent advances in drilling technology and methods have resulted in greater oil production in Texas, North Dakota and other regions even as a slow economy and higher fuel efficiency has slowed the demand for oil in the U.S.
Enterprise and Enbridge said they will expand the 150,000 barrel a day pipeline's capacity to 400,000 barrels a day in the first quarter of 2013.
The two companies announced the reversal project in November 2011 after Enbridge bought ConocoPhillips' (COP) 50% stake in the pipeline for $1.1 billion.
U.S. benchmark West Texas Intermediate was trading at $92.45 Thursday afternoon, about $15 below the price for Brent crude.
With more oil being produced in the mid-continent area, pipelines that once moved crude into the country's Midwest are now having to reverse course to send oil out to its refining centers along the coasts. Even as Seaway capacity ramps up, more pipelines will be needed to transport the growing oil supply in the U.S. and Western Canada to refiners.
"The refining industry expects by 2015 Gulf Coast refiners will not longer be importing light, sweet crude oil," Day said. "This looks like the start of it."
At least one analyst warned that even with Seaway expanding WTI's market reach--and price--oil prices may continue to fall as production keeps rising.
"We consider this a risky bet on buying what will remain an oversupplied market," said Citi Futures analyst Tim Evans.
-By Ben Lefebvre, Dow Jones Newswires; 713-547-9201; email@example.com