Crude in western Texas weakened relative to the U.S. benchmark as production growth outpaced the capacity to use the oil or ship it out.
West Texas Intermediate in Midland, Texas, widened by 55 cents to a discount of $4.75 a barrel less than WTI in Cushing, Oklahoma, at 3:40 p.m., according to data compiled by Bloomberg.
The Permian Basin in western Texas and New Mexico, the largest field in the U.S., produced 1.3 million barrels a day in October, according to the Energy Information Administration.
“Production is rapidly exceeding the infrastructure,” Uzi Yemin, Delek US Holdings Inc.’s chief executive officer, said on a conference call. “As long as WTI pays above $85 to $90 there’s a huge incentive for producers to get it out of the ground as quickly as possible and just sell it outright.”
Magellan Midstream Partners LP’s Longhorn pipeline, which carries crude to Houston from western Texas, will operate at 85 to 90 percent of its 225,000-barrel-a-day nameplate capacity to allow for downtime and scheduling breaks, Chief Executive Officer Mike Mears said Oct. 31.
Delek will perform maintenance at its Tyler, Texas, refinery in December and will shut its El Dorado, Arkansas, plant Jan. 4 for 38 days of work, Frederec Green, the company’s head of refining, said on today’s call. The two refineries combined process about 87,000 barrels of Midland-priced crude a day, Yemin said.
“The biggest players in Midland, the refineries that take Midland directly, have some turnarounds coming,” Yemin said.
Delek has the opportunity to lock in Midland crude prices at $3.50 a barrel less than WTI in Cushing for the first quarter and $2 a barrel less for all of 2014, Yemin said. It has chosen not to do so, he said.
West Texas Sour, a high-sulfur crude from the Permian, was unchanged at a $5-a-barrel discount to WTI in Cushing.