West Texas Intermediate oil’s discount to London’s Brent widened from the narrowest in almost nine months after Exxon Mobil Corp. shut a pipeline carrying crude from Illinois to the U.S. Gulf Coast.
Exxon shut its 96,000 barrel-a-day Pegasus pipeline system on March 29 after a leak spilled heavy Canadian crude near the town of Mayflower, Arkansas. The company has collected about 12,000 barrels of oil and water, according to a statement yesterday from the Mayflower Incident Unified Command Joint Information Center. The city recommended the evacuation of 22 homes in the area.
The stoppage will mean less crude can be transported from the U.S. Midwest, potentially exacerbating a glut of oil coming from Canada to the Midwest and depressing U.S. prices relative to European contracts. U.S. stockpiles rose 0.9 percent in the week ended March 22 to the highest since June and stood 12 percent above the five-year average. Inventories at Cushing, Oklahoma, the delivery point for WTI futures, increased 0.9 percent and were 54 percent higher than the average.
“U.S. crude inventories are at a fairly high level right now and the Pegasus pipeline shutdown will further increase pressure,” Shi Yan, an analyst at UOB-Kay Hian Ltd. in Shanghai, said in a phone interview.
The spread widened $1.22 to $14.01 a barrel today, based on settlement prices, the biggest gain since Feb. 8. It averaged $17.47 last year. Brent and WTI didn’t trade on March 29 because of the Good Friday holiday.
Pegasus is a 20-inch line that runs from Patoka, Illinois, to Nederland, Texas. The system was carrying Wabasca Heavy Crude from western Canada at the time of the incident, Kimberly Brasington, an Exxon spokeswoman, said yesterday. The system serves refineries near the Beaumont, Texas, area close to the Louisiana border, Alan Jeffers, a spokesman for the company, said separately. There are four plants near the city able to process about 1.4 million barrels a day of crude, according to data compiled by Bloomberg. The sites are operated by Exxon, Valero Energy Corp., Total SA and Motiva Enterprises LLC.
Exxon will need to excavate the line to determine the cause of the breach, Brasington said yesterday. The rupture has been located and the company is waiting for regulatory approval from the Transportation Department to begin excavation work and repairs, Jeffers said.
Fifteen vacuum trucks and 33 storage tanks have been deployed to the site of the spill to aid clean up efforts, according to the Unified Command, which consists of Exxon, Mayflower and Faulkner County. The company has sent 120 workers in response.
The U.S. Environmental Protection Agency is categorizing the incident as a “major spill” as it is larger than 250 barrels. according to the Unified Command statement.