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West Texas Oils Strengthen on Seaway, Pending Pipeline Projects

West Texas oils strengthened on the spot market, helped by the Seaway pipeline expansion and the impending completion of several pipeline projects designed to drain a glut of crude bottlenecked in the region.

Enterprise Products Partners LP (EPD) completed the 250,000- barrel-a-day expansion of the Seaway pipeline Jan. 11, opening up a route for more West Texas Intermediate oils to get a higher price on the Gulf Coast. Sunoco Logistics (SXL) Partners LP and Magellan Midstream Partners LP (MMP) are expanding pipelines running from West Texas to Houston by a total of 145,000 barrels a day as early as the end of this quarter.

West Texas Intermediate oil delivered at Midland gained $3.25 a barrel to trade at a $3.25 discount to the same grade delivered at the U.S. supply hub in Cushing, Oklahoma, as of 2:05 p.m. New York time, according to data compiled by Bloomberg.

The discount for West Texas oils has narrowed by more than two-thirds since Jan. 11, when WTI Midland was trading at a $13 discount and West Texas Sour, another oil produced in Texas’s Permian Basin, was at a $19 discount. West Texas Sour’s discount has more than halved to $8.50 since then.

Rising shale oil production from the Permian Basin region in West Texas and southern New Mexico has filled pipeline capacity and contributed to oversupply in Cushing.

Production Rises

Texas oil production increased 31 percent to an average of 2.1 million barrels a day in October from a year earlier, Energy Department data show. New drilling techniques have unlocked oil in shale rock formations, boosting the state’s output to the highest level since 1987.

Sunoco Logistics plans on having two pipeline expansions from western Texas complete by the end of the first quarter, These include a 30,000-barrel-a-day line to Longview, Texas, and a 40,000-barrel-a-day line to Nederland, Texas, Joe McGinn, a spokesman for the Philadelphia-based company, said in a phone interview Jan. 15.

Magellan Midstream will also finish the reversal of the Longhorn pipeline from Crane, Texas, to Houston and begin moving 75,000 barrels a day by late in the first quarter or early in the second quarter, the company’s Tulsa, Oklahoma-based spokesman Bruce Heine said in an e-mail.

The expansions will add capacity to the region currently provided by Plains All American Pipeline LP (PAA)’s Basin pipeline, which moves as many as 450,000 barrels a day of oil to Cushing.

In Canada, Syncrude, a synthetic light crude produced from bitumen, weakened 75 cents to a $1.75 discount to WTI, according to Calgary oil broker Net Energy Inc. Western Canada Select, a heavy bitumen blend, lost 60 cents to trade at a $37.10 discount.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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