The Expansion Of The Seaway Oil Pipeline Is One Of Several Factors Ushering In An Era Of Cheaper Gasoline

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Pipeline at terminal
The expansion of crude oil pipeline capacity is a key to cheaper U.S. gasoline prices.

Good news, car drivers: The pump price for gasoline is headed south. And the trip appears to be one-way.

There are several reasons why it is getting cheaper to drive. One has to do with West Africa, another with China, a third with Saudi Arabia and a fourth with Europe. But the main reason has to do with a 30-inch crude oil pipeline between Oklahoma and the Gulf of Mexico.

Known as the Seaway pipeline, it carries crude oil, known as West Texas Intermediate (WTI), from a huge terminal complex at Cushing, Okla., to the Texas Gulf Coast. Earlier this week the pipeline’s owners completed expanding the pipeline’s capacity from 150,000 barrels per day to 400,000 barrels per day. That increase in WTI supplies gave gasoline refiners on the Gulf coast an alternative to a much more expensive crude oil, known as Brent blend, that they have been importing from Europe. Refiners have been forced to pay for Brent because there has not -- until this week -- been adequate pipeline capacity to transport less-expensive WTI from Cushing to the Texas Gulf Coast.

The effect of Seaway’s expansion on Brent prices Thursday was quick and dramatic. Brent tumbled $1.48 or 1.3 percent to $110.41 per barrel, below its critical 100-day moving average of $111.05.

That price decline will be passed on to U.S. drivers who buy gasoline refined from the less-expensive crude oil. Gasoline for February delivery fell Thursday by 5.77 cents, or 2.1 percent, to $2.7356 a gallon on the New York Mercantile Exchange. Prices touched $2.7266, the lowest intraday level since Dec. 24, 2012. That’s down from the national average price of regular gasoline a year ago, which was $3.382 per gallon.

The lower prices U.S. drivers will get from Seaway’s expansion will be supported by several other factors. One is fuel demand in West Africa, which is declining for seasonal reasons. Another factor is an unusually large number of European tankers -- as many as 21 -- carrying gasoline and other petroleum products, which are set to reach New York Harbor soon.

Both developments increase the supply of gasoline available in the U.S., which in turn lowers the pump price of gasoline.

Further, developments in Saudi Arabia augur cheaper gasoline. The world’s top crude oil exporter said this week it cut production in the last two months of 2012, cutting supply over worries about the commodity’s price declines.

"Although the sharp Saudi production cuts last month toward 9 million barrels a day were widely mentioned as a bullish consideration, we viewed the reduction as further evidence of global demand weakening and consequently deserving of a bearish checkmark," Jefferies Bache said in a note.

Look for more cuts in the pump price of gasoline.

“This is taking the pressure off Brent crude and could translate into lower product prices across the board,” Phil Flynn, senior market analyst at Price Futures Group in Chicago, said. “You’re alleviating the glut, getting it out to the refiners who can actually buy the stuff, and they can put more products out into the global marketplace.”

Taken together, the increased North American crude oil production and better delivery of crude to Gulf Coast refiners -- in addition to less-expensive imports of gasoline from European refiners and moderating growth in China’s economy -- are expected to put a long-term cap on costly driving.

“It’s all going to create a more competitive market and signal the end of an era of high gasoline prices,” Flynn said.

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