Light Louisiana Sweet and other U.S. Gulf of Mexico crudes strengthened relative to West Texas Intermediate as withdrawals from the Cushing, Oklahoma, oil hub have slowed in recent weeks.
Inventories in Cushing, the delivery point for WTI futures traded on the New York Mercantile Exchange, have fallen an average of 1.1 million barrels a week the past three weeks, following a five-week period in which declines averaged 1.96 million barrels. Supplies sank 837,000 barrels in the week ended Aug. 23, the smallest drop since June 28.
The slowing inventory reduction mean that it will take the oil hub longer than expected to reach its minimum operational capacity of 20 million to 25 million barrels, said Amrita Sen, chief oil market analyst for Energy Aspects Ltd. in London.
LLS strengthened by 30 cents to a premium of $3.55 a barrel more than WTI at 11:59 a.m., according to data compiled by Bloomberg.
“The expectation was that Cushing would reach its operational minimum at the end of September,” she said. “Now that’s been pushed back to October or November.”
The outlook for healthier Cushing stockpiles, along with fear that conflict in Syria will escalate and reduce crude exports from the Middle East, have caused WTI’s discount to Brent, the European benchmark, to grow after it reached a 35-month low of 20 cents on July 19. The spread widened 39 cents to $6.90 a barrel at 12:30 p.m. today.
LLS and other Gulf of Mexico oils compete with foreign crudes priced against Brent for space in U.S. refineries.
Several factors have combined to slow withdrawals from Cushing. CVR Energy Inc.’s refinery in Coffeyville, Kansas, which can receive oil by pipeline directly from Cushing, has had an extended unplanned outage of a main production unit since the beginning of August. HollyFrontier Corp.’s Tulsa East refinery in Oklahoma suffered a power failure on Aug. 15 that shut units.
Enterprise Products Partners LP shut the 400,000-barrel-a-day Seaway pipeline that takes oil to Houston from Cushing for 12.5 hours on Aug. 20, according to a report form Louisville, Kentucky-based Genscape Inc. Hawthorn Oil Transportation Inc.’s 90,000-barrel-a-day pipeline that carries crude to Cushing from a rail terminal in nearby Stroud, Oklahoma, restarted Aug. 20 after being idle for nearly a year, reported Genscape, an energy information provider.
Canadian Oil Sands Ltd. restarted a coker at the Syncrude oil-sands upgrader in Alberta on Aug. 27 after shutting the unit for work June 10. The unit makes synthetic light oil and will reduce PADD 2 refineries’ demand for oil from Cushing, Sen said.
Heavy Louisiana Sweet crude strengthened by 30 cents to a premium of $3.90 a barrel. Thunder Horse gained 65 cents to $1 over WTI.
Mars Blend, a high-sulfur Gulf crude gained 25 cents to $1.75 a barrel below WTI. Poseidon’s discount narrowed 20 cents to $2.90 a barrel. Southern Green Canyon strengthened 50 cents to a $3.40 discount.