The flood of new oil production throughout the middle of the country has created a backlog in Cushing while shippers wait in line to move the crude to refineries on the Gulf Coast.
A slew of new pipelines promises to relieve the glut, but most of the planned lines are still under construction.
Full relief is not expected until 2015.
The excess crude has suppressed prices for local producers, driving down the sales price as much as $20 a barrel as compared with international prices.
“It's a good problem to have for the country. We're finding lots of hydrocarbon,” said Jeff Hume, vice chairman of strategic growth initiatives at Oklahoma City-based Continental Resources Inc. “There's going to be a few hiccups along the way. You get one piece of pipe built and just move the glut from one point to the next until the entire system is upgraded. When you get everything flowing, it should be really good for the country.”
Until then, however, producers in much of Oklahoma, Texas and surrounding areas likely will continue to see their sales prices depressed relative to the rest of the world. West Texas International, priced at Cushing, closed at $97.31 per barrel Thursday. Brent crude, priced in London, closed at $118.
“What you're getting here is still a good price, but the world price is set higher,” Hume said.
Local producers have looked to the expanded Seaway Pipeline as one of the first large upgrades to move more oil from Cushing to the Houston area.
The expanded line became operational last month, but delays on the Texas end have prevented the line from consistently operating near its new capacity.
Seaway operator Enterprise Products Partners LP is expanding a connecting line that will help transport oil from the Seaway terminal to refineries in the area.
Bill Ordemann, Enterprise Products Partners executive vice president, last month said the line is expected to be operational in the third or fourth quarter. When that is complete, he said, “I think we'll have the ability to alleviate most of the bottlenecks we're seeing right now.”
Goldman Sachs Group Inc. last month predicted Seaway to quickly reduce the spread between WTI and Brent to as little as $6.
With the export delays, some analysts have said the spread could reach as high as $30 by the end of the year. Hume, however, said he expects the difference to remain close to $20 a barrel.
Seven more new or expanded pipelines expected to be operational by the end of next year will either carry oil away from Cushing or bypass the Oklahoma terminal altogether.
The U.S. Energy Information Administration said Wednesday that the pipeline upgrades should help bring the local crude oil sales price more in line with international levels.
“Over the next two years, planned additions to pipeline takeaway capacity should be sufficient to ameliorate the current imbalance at the Cushing hub,” the agency said.