Nov. 8 (Bloomberg) -- Sweet and sour oil grades in West Texas sank to six-month lows as output growth outpaces new pipelines and as refiners and producers try to reduce inventories to pay less tax.
Texas oil production increased 35 percent to an average of 2 million barrels a day in August from a year earlier, Energy Department data show. Output was boosted to the highest level since June 1988 by drilling techniques that have helped develop new shale plays such as the Eagle Ford in southern Texas and older fields in the western part of the state.
West Texas Intermediate oil delivered in Midland, Texas, sank 35 cents to $7 a barrel below the same grade in Cushing, Oklahoma, which is the benchmark U.S. oil price, at 3:56 p.m. in New York. The discount for West Texas Sour versus WTI in Cushing widened 60 cents to $7.60 a barrel, according to data compiled by Bloomberg. Those are the largest discounts for the grades since April 25.
“People are trying to move as much oil as they can out of Texas but pipelines are full because of increasing production,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston. Regional refinery maintenance is also helping reduce demand for the grades, Lipow said.
WTI in Midland averaged a 75 cent discount during the past five years, and WTS averaged $2.75 below the benchmark.
Companies in Texas can be taxed on the value of stored crude as part of local property taxes, R.J. DeSilva, an Austin-based spokesman for the Texas Comptroller of Public Accounts, said in an e-mail.
On the Gulf Coast, Light Louisiana Sweet’s premium to WTI narrowed 50 cents to $20.50 a barrel. Heavy Louisiana Sweet fell 50 cents to $20 a barrel over WTI.
Poseidon’s premium widened 10 cents to $14.50. Mars Blend slipped 20 cents to $14.40 a barrel over WTI, and Southern Green Canyon gained 55 cents to a $14.90 premium.
The premium for Thunder Horse, a sour crude with lower sulfur content than Mars, Poseidon and Southern Green Canyon, was narrowed 75 cents to $19.50 above WTI.
Western Canada Select’s discount widened 50 cents to $30 below the U.S. benchmark. Syncrude, a Canadian light synthetic oil processed from oil sands, gained 25 cents to a $7 a barrel discount. Bakken crude delivered in Clearbrook, Minnesota, increased $1.25 to an $8 discount.
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