More going on with Brent/WTI spread

The owners of the 500 mile Seaway pipeline which is supped to be reversed to allow oil from Cushing, Ok  to move to the Gulf coast have sought to be able to charge market rates for the use of the pipeline. Shippers want FERC to regulate the rates. Because this is the only pipeline that would be able to flow oil from Cushing to the Gulf, it would have a monopoly on transport. Oil has been moving by rail but this is an expensive alternative. The arbitrage of oil prices by location will be negatively affected by unregulated pipeline charges and the ability of price spreads to move to "one price" would be compromised. The oil arbitrage differential will be related to higher flow charges; however, there will be a price at which oil will flow.


Commodity arbitrage is different from financial arbitrage because there is a physical aspect which is tied to the cost of transport. The ability to flow oil to the Gulf will reduce the Brent/WTI spread but this difference is not going to be eliminated in the near-term.