U.S. Midwest Crude Bottlenecks to Ease, JPMorgan Says

Oil bottlenecks at Cushing, Oklahoma, the delivery point for New York futures, will ease, leading JPMorgan Chase & Co. to recommend buying June WTI futures and selling Brent contracts for the same month.

Lower prices for WTI in relation to other grades are making it profitable to move supplies by rail from the supply hub and will trigger “alternative solutions” to the movement of crude, JPMorgan analysts led by New York-based Lawrence Eagles said in a report today. Canadian oil output will drop in April, May and June, as companies perform maintenance, according to the report.

The premium of April Brent crude, the European benchmark, to New York oil for the same delivery month, narrowed to $12.31 a barrel at 11:03 a.m. in New York, down from a record $15.94 on Feb. 16. The gap averaged 76 cents last year. The spread between the June contracts dropped to $9.41 from $11.35 on Feb. 16.

“If the spread gets wide enough all sorts of innovative alternative methods will be brought into play to move the oil,” the analysts said. “These will take some time to set up and will be price sensitive but there is every reason to believe that they will contribute to clearing this market.”

Brent crude oil for April settlement added 25 cents to $102.79 a barrel on the London-based ICE Futures Europe exchange. Crude oil for April delivery on the New York Mercantile Exchangerose $1.69, or 1.9 percent, to $90.53.

Crude for March delivery, the front-month contract on the Nymex, rose $1.13, or 1.3 percent, to $87.49.

(Source: http://www.bloomberg.com/news/2011-02-18/u-s-midwest-crude-bottlenecks-to-ease-jpmorgan-says-update1-.html)