Booming Permian Sends West Texas Sour to Lowest Level in Month

West Texas Sour crude sank to the lowest level relative to the benchmark grade in more than a month as a refinery shutdown lowered demand amid booming production from the Permian Basin.

WTS, a medium-density, high-sulfur Permian oil priced in Midland, Texas, weakened by 10 cents a barrel to a discount of $8.30 versus West Texas Intermediate in Cushing, Oklahoma, at 1:58 p.m., according to data compiled by Bloomberg. That was the widest differential since May 23.

Valero Energy Inc. (VLO)’s McKee refinery in northern Texas was operating at reduced rates after restarting units late yesterday, according to Genscape Inc., an energy information service. A breaker tripped June 29 at the 170,000-barrel-a-day plant, which runs crude from western Texas, a filing with state regulators showed.

WTS has historically traded at a discount of a few dollars to WTI to account for quality differences and the cost of pipeline transportation from Midland to Cushing. The discount widened in 2012 and again this year as booming production overwhelmed takeaway capacity.

Output in the Permian, the largest onshore oil field in the U.S., has jumped by 79 percent since the start of 2010 as producers have used horizontal drilling and hydraulic fracturing to blast crude out of previously inaccessible underground shale rock. The basin now produces about 1.57 million barrels a day, Energy Information Administration data show.

Current pipeline capacity out of the region is 1.27 million barrels a day, according to Pioneer Natural Resources Ltd.’s July investor presentation. Magellan Midstream Partners LP and Occidental Petroleum Corp. are preparing to start a new pipeline, BridgeTex, that will add 300,000 barrels a day of space.

To contact the reporter on this story: Dan Murtaugh in Houston at dmurtaugh@bloomberg.net

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Charlotte Porter, Stephen Cunningham

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