It said US oil production, already at a 15-year high, is now expected to rise to 7.3 million barrels per day in 2013. The EIA also expects 2014 production to increase to 7.9 million barrels, the highest total since 1988. That figure is up from a low of 5 million barrels in 2008.
The result could be lower prices. The EIA forecasts that Brent could fall to $105 next year and to $99 in 2014, while it expects WTI to trade an average $89.54 in 2013, and $91 in 2014. The spread between WTI, trading at about $93 Tuesday, and Brent, trading at $111.82 Tuesday, should continue to narrow to $16 in 2013, and to $8 in 2014.
"We were having trouble getting oil to market because of that bottleneck in Cushing, and that's one of the things that the pipeline is supposed to help," said Gene McGillian, analyst with Tradition Energy. McGillian said the oil market also has its eye on Washington, and trading has been more volatile as a result.
"The idea that the spending cuts and the debt ceiling weren't dealt with keeps the market focused on economic issues," he said.
Andrew Lipow, president of Lipow Oil Associates, said Seaway is the first of several pipelines that will change the flow of oil.
"By the end of the first quarter, we expect pipelines from Magellan LP and Sunoco Logistics to be on line," said Lipow. "By the end of 2013, we should have the Keystone XL Southern leg in service from Cushing to the Gulf Coast.
The flood of new oil coming to the Gulf Coast could compete with Louisiana Light Crude, used in refining, and priced closer to Brent, said Kilduff.
"The question is whether the impact of all this crude coming into the Gulf Coast, is it going to be enough to top over demand for Brent? Will it be a tipping point?" said Kilduff. "The way these numbers keep going up and up, it seems like it could."
Kilduff said that would depend on how the impact of the Midwest crude filters through to the east coast, since the east coast refineries have run on oil based on Brent prices.
"The question is whether WTI rises to the Brent price, or Brent falls down toward the WTI price," said Kilduff. "Right now, it appears the WTI is rising toward the Brent. The focus now is on what this pipeline is going to do to drain the bottleneck in Cushing."
Brent has historically traded below WTI, but in the last several years it's been at a premium because of Middle East tensions, declining production in the North Sea, production disruptions in Africa and mostly the bottleneck in Cushing.
Kilduff added that the Saudis have also increased supplies to their jointly owned Motiva refinery in Texas, and that supply will also hit the Gulf Coast market.
"My expectation is that the Brent spread will get to $10," said Lipow. "My expectation is that we will export a record amount of petroleum product in 2013 because petroleum product demand in the US is relatively stagnant and we are going to process more crude as refiners in the Gulf Coast have raw material and operating cost advantages."
The US became a net exporter of refined products in 2011 for the first time since 1949.
Lipow said the US refineries are running at historically high levels for this time of year, and he thinks pump prices could fall to a low this year of $3.10 per gallon. According to AAA, the national average is $3.30 per gallon for unleaded regular gasoline, up slightly from $3.29 a week ago, but down from $3.47 a month ago. His expectation is that the year high will be $3.70.