Gulf Crudes Strengthen as Buyers Hustle Amid Production Outages

Crudes on the U.S. Gulf Coast strengthened as production outages in the Gulf of Mexico and Bakken formation and lower imports from overseas reduced supply.

Bonito Sour strengthened by $3 a barrel to a premium of $11.75 over U.S. benchmark West Texas Intermediate at 1:57 p.m., the highest level in more than nine months, according to data compiled by Bloomberg.

Royal Dutch Shell Plc (RDSA) is making repairs on its Ship Shoal system, which can carry 390,000 barrels of oil a day into St. James, Louisiana, from the Gulf of Mexico Kayla Macke, a Houston-based spokeswoman for the company, said by e-mail. A train derailment in North Dakota may cause 36- to 48-hour delays for shipments through the corridor, BNSF Railway Co. said on its website.

Crude imports to the Gulf Coast fell to 3.09 million barrels a day last week, the lowest level since September 2008, according to Energy Information Administration data. Refinery inputs on the Gulf Coast at 8.26 million barrels a day were a record for this time of year, EIA data show.

“Unscheduled outages for production in the Gulf of Mexico and the Bakken, along with lower imports and higher crude runs on the Gulf Coast have resulted in a scramble for barrels,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone.

Shell Pipeline

Shell shut the 22-inch sour crude pipeline on its Ship Shoal system, which along with Auger makes up the Bonito Sour stream, Macke said.

Production at two platforms was affected, and the company rerouted shut-in crude to other pipelines and moved Auger flows via the Poseidon pipeline starting on Jan. 9. The lines will reopen after repairs are complete, Macke said, not offering an estimate for how long the work will take.

Imports have been reduced by severe weather that closed three Mexican oil ports several times in December and January. Shipments to the U.S. from Mexico dropped to 555,000 barrels a day last week, the lowest since the week ended May 24, preliminary EIA data show.

“The medium sours have been the strongest in this rally. Mars and Bonito, Thunder Horse, they’ve all been strong,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “It’s possible that the Mexican delays of heavier crude helped lead the medium sours higher. The pipelines are a piece of that, too.”

Mars Blend strengthened by 50 cents a barrel to $9.50 more than WTI. Thunder Horse gained 50 cents to a $13 premium. Poseidon crude gained 85 cents to $8.85 more than WTI, and crude from the Southern Green Canyon gained 50 cents to an $8.50 premium.

Train Derailment

An intermodal train shipping no hazardous materials derailed today in Temple, North Dakota, about 90 miles west of Minot, Steven Forsberg, a spokesman for BNSF, said by e-mail. The derailment could cause delays of 36 to 48 hours on shipments through the corridor, BNSF said in an advisory on its website. About 71 percent of the oil drilled in the Bakken leaves North Dakota on railcars, the state Pipeline Authority said yesterday.

North Dakota’s portion of the Bakken produced a record 908,380 barrels of crude a day in November, the state Industrial Commission said on Jan. 14. Production in December and January has been hurt by cold weather that makes it more difficult for service providers to operate there, Lynn Helms, director of the state’s Mineral Resources Department, said on a conference call that day.

Louisiana Shipments

More than 907,000 barrels of crude were shipped to Louisiana from North Dakota through a portion of last year, up from about 704,000 barrels in 2012, according to the Louisiana Department of Natural Resources. NuStar Energy LP receives Bakken crude by rail in St. James, Louisiana, the pricing point for Light Louisiana Sweet Crude.

“The rail delay probably has a more pronounced affect these days because a significant amount of production has been lost to weather, so there’s already been a scramble for barrels,” Lipow said. “That’s contributed to LLS strength.”

Light Louisiana Sweet, the light, sweet benchmark on the Gulf Coast, strengthened by 50 cents to a premium of $12.50 a barrel over WTI. Bakken for delivery at Clearbrook, Minnesota, was unchanged at $2 under WTI.

To contact the reporters on this story: Eliot Caroom in New York at ecaroom@bloomberg.net; Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

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

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