WTI Midland, WTS discount at lowest level ever on rising output, lack of takeaway capacity
Houston (Platts)--20Nov2012/705 pm EST/005 GMT
West Texas Intermediate at Midland and West Texas Sour at Midland
crudes' discount to the NYMEX light sweet crude contract fell to their lowest
levels ever Tuesday, according to Platts data, stretching back to 1987.
On Tuesday, Platts assessed WTI Midland at a $21.50/b discount and WTS
Midland at a $22.00/b discount to NYMEX light sweet crude contract or to WTI
at Cushing, Oklahoma.
Increased production in the Permian Basin and the lack of sufficient
takeaway capacity have dragged WTI Midland and WTS Midland to their lowest
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The outright price for WTI Midland worked out to $65.14/b and $64.64/b
for WTS, which are $13.11/b and $13.61/b lower, respectively, than Canada's
Western Canadian Select heavy sour crude assessment at Cushing.
"WCS in terms of quality should be cheaper than WTS, but because of the
lack of takeaway capacity WTS is weaker than WCS," a Gulf Coast crude
"Not only has the value of WTI Midland and WTS eroded, it has become one
of the cheapest crudes in the US today. It needed to come down to attract
buying otherwise production would need to shut-in," the crude trader said.
"This is how much the industry is saying it needs to move WTI Midland
and WTS to the refining centers of Texas," a refiner said.
Permian Basin production is at about 1.1 million b/d while takeaway
capacity is at about 900,000 b/d into Cushing. Production at the Permian
Basin makes up 55% or more of Texas total crude oil output. In August, Texas
produced just over 2 million b/d of crude, the highest since June 1988,
according to the US Energy Information Administration.
On Monday, Magellan and Occidental announced that they will construct
a 200,000 b/d pipeline to ship crudes from the Permian Basin to Houston. The
BridgeTex line is expected to come into service mid-2014.
In addition, Magellan is reversing its 225,000 b/d Longhorn Line to ship
Permian crudes to Houston. This line is scheduled to have its first shipment
in early 2013.
"I am not sure if these pipelines will be sufficient to offer all the
takeaway capacity needed only a decline in crude prices will slow down
production and stop the decline in WTI Midland and WTI's value," the refiner
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