Oil market volatility from the Iran conflict could pump up earnings for South Bow (SOBO). The company’s marketing segment has been weighed down recently by reduced volumes on Keystone Pipeline, but the unit is poised to gain from widening price spreads to the Gulf Coast.
Keystone has been operating under pressure restrictions since April ’25, when the pipeline suffered a rupture in North Dakota. The restrictions have constrained throughput from Western Canada and limited the system’s ability to move barrels beyond committed volumes. As a result, South Bow has primarily focused on meeting contractual obligations, reducing its exposure to higher-margin spot opportunities and weighing on overall marketing performance.
That backdrop may now be shifting. Spreads have widened between WTI and Magellan East Houston (MEH), a primary benchmark for Gulf Coast crude exports. The wider differentials create a more constructive environment for earnings by increasing the value of access to Gulf Coast markets.
Under normal conditions, the MEH-WTI spread reflects the marginal cost of transporting crude from the Cushing hub in Oklahoma to Houston, averaging about $1.02/bbl in 2025. However, netbacks to the Gulf Coast have strengthened since the start of the Iran war, a result of increased refinery demand and higher export pricing tied to the international Brent benchmark. Global supply disruptions have tightened waterborne crude markets and pulled US barrels toward the coast, pushing the spread above $4 in April (see figure at right).
While the marketing segment’s performance is somewhat opaque, East Daley Analytics’ SOBO Financial Blueprint provides insight into the potential upside. South Bow’s Cushing-to-Gulf Coast corridor is well positioned to capture this opportunity, with ~120 Mb/d of open capacity available to its marketing arm.
We estimate the Keystone leg from Cushing to the Gulf Coast could generate $80MM in additional revenue from 2Q26 to YE26 and $80MM in 2027 if all 120 Mb/d of open capacity were utilized (see figure). While the pressure restrictions on Keystone have curtailed imports from Canada, they do not apply to the southern leg of the system.
East Daley views recent volatility as a near-term tailwind that could help South Bow optimize its assets and strengthen its balance sheet. – Garrett Streit and Amelia Johnson Tickers: SOBO.
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