Bloomberg News

U.S. Refiners Tumble on Plan to Reverse Seaway Crude Pipeline

November 16, 2011

Nov. 16 (Bloomberg) -- Marathon Petroleum Corp., HollyFrontier Corp. and other U.S. refiners declined on an announcement that the Seaway pipeline will be reversed, which may boost the costs of crude and narrow profits from making fuel.

Marathon Petroleum fell 6 percent to $34.77 at 11:01 a.m. in New York, while HollyFrontier dropped 8.5 percent to $25.24. Western Refining Inc. tumbled 9.1 percent to $14.11, and CVR Energy Inc. fell 9.5 percent to $19.86. Tesoro Corp. fell 4.4 percent and Valero Energy Corp. declined 4.8 percent.

Enbridge Inc. said today it agreed to buy ConocoPhillips’s 50 percent stake in the Seaway pipeline system for $1.15 billion. Enbridge and Enterprise Products Partners LP then announced they plan to change the pipeline’s direction to make it flow from the crude storage hub at Cushing, Oklahoma, to the U.S. Gulf Coast.

Refiners that operate inland U.S. plants have benefited because their crude supplies were priced off of the less- expensive West Texas Intermediate, or WTI, benchmark as Brent crude prices soared. The change may help alleviate a bottleneck at Cushing that has kept WTI crude prices from going higher.

“The reversal of the pipeline is certainly going to put pressure on the spread between WTI and Brent,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc. in Houston. “The tighter that spread gets, the more compressed their earnings will be.”

Brent futures, a benchmark oil price used by much of the world, averaged more than $22 a barrel higher than WTI prices in the third quarter. The spread has narrowed to about $10 a barrel in trading today.

--Editors: Jessica Resnick-Ault, Steven Frank

To contact the reporter on this story: Edward Klump in Houston at

To contact the editor responsible for this story: Susan Warren at

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