The premium for Light Louisiana Sweet, the benchmark low-sulfur crude on the Gulf Coast, to West Texas Intermediate fell to the lowest level since March 2010 amid sustained growth in domestic oil supplies.
LLS’s premium to U.S. benchmark WTI shrank 25 cents to 75 cents a barrel at 4:11 p.m. New York time. Heavy Louisiana Sweet’s premium narrowed 5 cents to $1 a barrel.
“Domestic competition is pushing its way towards the Gulf Coast,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. “That competition will continue to grow as we get more Eagle Ford oil on the Gulf Coast and Permian Basin oil on the Gulf Coast and as we get to the end of the year, the Ho-Ho line will complete its reversal.”
Domestic crude production increased 1.1 percent to 7.83 million barrels a day in the week ended Sept. 13, according to a report today from the Energy Information Administration. Output is the highest since 1989.
Royal Dutch Shell Plc. (RDSA) said in August it expects the reversed pipeline from Houston to Houma, Louisiana, to be operational by the end of 2013. The company plans to expand the Ho-Ho line to 250,000 barrels a day by early 2014 by adding pumping capability.
“We’ve kind of cleared away the big broad-brush supply, pipeline constraint story, and now we can start looking more closely at what is the actual intrinsic value of LLS,” said Sarah Emerson, managing principal of ESAI Energy Inc. in Wakefield, Massachusetts. “LLS is weak, should stay weak, and where it ends up depends on a lot of other smaller factors.”
Gulf crude Thunder Horse weakened by 75 cents a barrel to a $2 a barrel discount to WTI. Southern Green Canyon lost 50 cents a barrel to a $7 discount.
The discount for Poseidon, a medium sour grade, dropped by 80 cents to $5.05 a barrel against WTI. Mars Blend lost 30 cents to a $4.30 discount.