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How to Invest in Oil as Pipelines Release Trapped Profits

The story of how to invest in oil in the U.S. is changing thanks to a new development…

Before now, much of the increased oil production (U.S. output at a 17-year high) from the Bakken in North Dakota and the Eagle Ford and Permian Basin in Texas never reached the marketplace. It simply piled up in storage facilities at the main U.S. oil hub in Cushing, OK.

The huge inventory of oil at Cushing was the main culprit behind domestic WTI (West Texas Intermediate) crude oil selling at a discount to the global benchmark, Brent crude oil.

But, as pointed out by Money Morning Global Energy Specialist Dr. Kent Moors, that is all beginning to change.

Already the spread between WTI and Brent has narrowed dramatically from about $20 a barrel in February to less than $3 a barrel today.

The reason for the change is the amount of pipeline infrastructure being added to move oil from the Cushing choke point to refineries on the Gulf Coast.

Oil Pipelines Coming Online

At least seven pipeline projects are underway with the goal of moving oil from Cushing to the Gulf Coast, which has the largest concentration of refineries in the U.S. The area refines roughly one-quarter of the country's gasoline supply.

Some of the notable oil pipelines include:

  • The Seaway Pipeline, owned 50/50 by Enbridge (NYSE: ENB) and Enterprise Products Partners (NYSE: EPD), had its flow reversed last year to move oil southward. In 2014, it is expected to have its capacity expanded to 850,000 barrels a day.
  • The recently opened Permian Express pipeline, owned by Sunoco Logistics Partners (NYSE: SXL), moves about 150,000 barrels of oil a day from the Permian Basin to Gulf refineries.
  • In late September, the Longhorn pipeline will have about 225,000 barrels a day of Permian Basin oil flowing through its pipes. This reversed-flow pipeline is owned by Magellan Midstream Partners (NYSE: MMP).

The build-out of oil pipelines is also good news for those oil companies producing in the Eagle Ford and Permian Basin, such as Pioneer Natural Resources (NYSE: PXD).

Production in the Eagle Ford alone has jumped 10-fold over the past three years to about 900,000 barrels a day. By 2020, output is expected to reach 1.6 million barrels of oil per day.

The president of Plains All American Pipeline (NYSE: PAA), Harry Pefanis, told this to Reuters:

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