The substantial weakening of the LLS/WTI spread will likely end the movement of crude barges from near the NYMEX hub in Cushing, Oklahoma, to the US Gulf Coast, a terminal operator said Wednesday.
Petro Source Terminals, an operator at the Oklahoma port of Catoosa, about 70 miles east of Cushing, continues to ship barges of light sweet crude to the US Gulf Coast, but said it does not expect such movements to continue much longer as the LLS/WTI spread narrows.
The LLS/WTI spread was assessed at $14.10/barrel on Tuesday, down from a peak of $29.50/b on September 22. It was trading around $12.50/b by midday Wednesday.
The narrowing of the spread picked up momentum Wednesday on news Enbridge agreed to buy ConocoPhillips' stake in the Seaway crude pipeline for $1.15 billion, and that new joint owners Enbridge and Enterprise Products Partners would reverse the direction of the pipeline by the second quarter of 2012, which would alleviate a bottleneck of supplies at Cushing.
An executive from Petro Source said in a telephone interview Wednesday that his company has four barges slated to move crude in November, each about 40,000 to 45,000 barrels via the Arkansas River, a major tributary of the Mississippi, and down to New Orleans, which can take about five to six days.
"We are still loading barges now, but the spread is not very good. We will have to wait to see where it will trade once the pipeline is reversed in the second quarter," the executive, who did not want to be identified, said.
Petro Source began loading barges in early September to take advantage of the favorable spread at the time but also noted that the move was temporary.
"We always knew it wouldn't last but we had a great deal for five months," the executive said.
Industry analysts have previously said the truck rate to move crude oil to Catoosa from Cushing is roughly $2/b-$3/b, while barging down the Arkansas River and then onto the Mississippi River to the Gulf Coast costs another $4/b-$5/b. Also, a general port fee would be included in the overall cost.
Going forward, the Petro Source executive said he was not sure if the company will barge crude to the Gulf Coast in December, but said it will continue to move other products at smaller volumes.
"We will also look at moving crude and other products from the south to the north. We can probably favorably compete with rail in either direction," said the executive.
