West Texas Sour oil weakened for a second day on a supply glut in the Permian Basin.
Texas oils including West Texas Sour have been under pressure over the past two months as rising production has filled pipelines leading out of the region. The glut has also reduced the price of Latin America Maya crude, which refiners use as an alternative to West Texas Sour.
West Texas Sour weakened by $4 to a discount of $17.50 a barrel to the U.S. benchmark West Texas Intermediate at 4:02 p.m. in New York, according to data compiled by Bloomberg. Maya’s discount to Light Louisiana Sweet widened by $1.20 to $19.32 a barrel.
“Because the West Texas Sour is bottlenecked in the Permian Basin, it is now lowering the price of Maya that’s delivered to the Gulf Coast, giving the refiners there the incentive to process Maya versus LLS,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said in a telephone interview.
Maya has been weakening against LLS since June 28, when the two crudes traded within $6 of each other. The discount for Maya spiked to $25.77 on Nov. 19, a four-year low.
An extended outage at Phillips 66 (PSX)’s Borger, Texas, refinery has worsened the glut. The plant, which normally processes some of that crude, has been down for maintenance since Sept. 22. A person familiar with the matter said Dec. 5 that the company may extend work on a fluid catalytic cracker for two weeks.
Projects are under way to relieve the bottleneck. Magellan Midstream Partners LP (MMP) plans to reverse the flow of the Longhorn pipeline to move crude from West Texas to Houston early next year. Sunoco Logistics Partners LP (SXL) plans to complete expansions in the Permian totaling 110,000 barrels a day in the first quarter, Chief Executive Michael Hennigan said during the company’s earnings call Nov. 8.
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