West Texas Intermediate oil delivered in Midland, Texas, weakened against the U.S. benchmark crude as Phillips 66’s refinery in Borger, Texas, was down for maintenance longer than expected, cutting into demand.
Phillips 66’s Borger refinery took down production units for maintenance on Sept. 22 and was scheduled to restart them last week, a person familiar with the situation said. Planned maintenance at the 146,000-barrel-a-day refinery is ongoing, the company said in an e-mail today.
WTI delivered in Midland declined 50 cents to $7 below the same grade of oil delivered in Cushing, Oklahoma, at 1:51 p.m. New York time, according to data compiled by Bloomberg. West Texas Sour’s discount to the benchmark narrowed 50 cents to $6.75.
“You’re seeing the aftereffects of the Phillips 66 Borger refinery returning from maintenance later than expected,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston, Texas. “That has added to the oversupply situation throughout the Permian Basin.”
Both Texas grades dropped to a record low of $20 below Cushing last week, as Borger’s maintenance was extended and as rising production overwhelmed the capacity of pipelines out of the Permian.
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. New drilling techniques have unlocked oil in shale rock formations, boosting the state’s output to the highest level since 1988.
WTI oil delivered at Midland has historically traded less than $1 below the Cushing price, reflecting the transportation costs between the two delivery points. This year, the oil has traded at an average discount of $3.26.
Pipeline projects are under way to provide more capacity to the region, including Magellan Midstream Partners LP’s plan to reverse the flow of the Longhorn pipeline to take crude from West Texas to Houston, expected early next year.