Crude oil transportation on the Seaway pipeline resumed today at the pipeline’s full capacity of 400,000 barrels a day now available to shippers wanting to move crude from the storage point at Cushing, Oklahoma, to the Gulf Coast. Seaway is a 50-50 joint venture between Enterprise Products Partners LP (NYSE: EPD) and Enbridge Inc. (NYSE: ENB).
The Seaway pipeline originally transported crude from the Gulf Coast to Cushing, but the production increases in the U.S. mid-continent created demand for the less expensive domestic crude at Gulf Coast refineries and the pipeline’s owners reversed the flow. Most U.S. crude trades at a price differential of more than $20 a barrel to the Brent crude imports to the Gulf Coast.
Refiners able to get their hands on the cheaper domestic crude are able to post better margins. Gulf Coast refiners have been locked into higher priced Brent and Louisiana Light Sweet crudes, while inland refiners have been able to source the cheaper crude. This has worked to the benefit of Marathon Petroleum Corp. (NYSE: MPC), HollyFrontier Corp. (NYSE: HFC) and Tesoro Corp. (NYSE: TSO) and to the detriment of Valero Energy Corp. (NYSE: VLO), which has many of its refineries located along the Gulf Coast.
Refiners stocks have posted substantial gains over the past 12 months, with Marathon up more than 88%, Tesoro up nearly 81%, and HollyFrontier up nearly 68%. Even Valero is up nearly 70%, with Phillips 66 (NYSE: PSX) the laggard with a share price gain of “just” 55% since its IPO last spring.