Midland Crude Weakens as Oil Inventories Grow in West Texas

West Texas Intermediate crude in Midland, Texas, weakened relative to the domestic benchmark in Cushing, Oklahoma, as stockpiles build up amid refinery maintenance in the largest U.S. oil basin.

Crude in Midland slid 90 cents a barrel to a discount of $9.50 versus Cushing at 2:06 p.m., according to data compiled by Bloomberg.

Visible stocks of crude in western Texas rose 1.4 million barrels, or 17 percent, last week, Adam Longson, an analyst at Morgan Stanley (MS), said in a research note yesterday. Some tanks in Midland are almost 90 percent full.

Valero Energy (VLO) Corp.’s McKee refinery in Sunray, Texas, which can take crude from Midland, is undergoing planned maintenance until Feb. 21, Longson said. Phillips 66 (PSX)’s Borger plant, also in the Texas Panhandle, shut its fluid catalytic cracker on Feb. 26 for 41 days of work, according to a filing with state regulators.

“Maintenance at Valero’s McKee refinery and logistical issues with some Permian crude being too light for pipelines has resulted in large builds and wider Midland diffs in recent weeks,” Longson said in his note.

Midland is the pricing point for the Permian Basin, which produces about 1.43 million barrels of crude a day, approximately 18 percent of total U.S. output, according to Energy Information Administration data.

That’s an increase of 140,000 barrels a day from a year earlier and 500,000 barrels a day from March 2010 as producers use improved technology to recover more oil from old wells and find crude in previously untappable rock. Takeaway capacity hasn’t kept pace with production growth, leading to periods of steep discounts.

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

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net Charlotte Porter, Richard Stubbe

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.