West Texas Crude Weakens Prior to El Paso Refinery Maintenance

Western Texas crude weakened prior to maintenance at a refinery that’s a large consumer of oil produced in the region.

Western Refining Inc. plans to shut part of one plant at the 128,000-barrel-a-day El Paso refinery for several weeks starting in February, Gary Hanson, a Tempe, Arizona-based spokesman, said Dec. 6. The two-plant refinery processes mostly West Texas Intermediate oil, according to a company presentation on its website.

WTI crude delivered in Midland, Texas, declined $2.75 to a $14-a-barrel discount to the same grade delivered in Cushing, Oklahoma, according to data compiled by Bloomberg.

A glut of supply from shale oil production has overwhelmed pipeline capacity out of the western part of the state, causing crude prices there to fall rapidly on any disruptions to local demand. On Nov. 20, WTI Midland dropped to $20 below Cushing prices, its widest discount ever, with Phillips 66’s Borger, Texas, refinery down for extended maintenance.

Texas oil production increased 33 percent to an average of 2.05 million barrels a day in September 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.

Transport Costs

WTI crude delivered at Midland has historically traded less than $1 below the Cushing price, reflecting the transportation cost between the two points. This year, the oil has traded at an average discount of $3.99 because of pipeline constraints.

In Canada, Syncrude was unchanged at parity with WTI, according to Calgary energy broker Net Energy Inc. Nexen Inc. started maintenance late yesterday at the Long Lake upgrader in Alberta, which will affect its synthetic crude oil shipments, Patti Lewis, a company spokeswoman based in Calgary, said in an e-mail.

Long Lake production was about 34,000 barrels a day at the end of October, according to the company’s third-quarter earnings release.

Western Canada Select, a heavy crude grade, strengthened 50 cents to a $33-a-barrel discount to WTI, Net Energy said.

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