The cost of light crude in West Texas has dropped far enough below Louisiana prices to prompt shippers to move oil to the Gulf Coast by rail.
Refinery maintenance has reduced local demand at the same time as crude output has recovered since the fourth quarter of 2013, when extreme weather caused well freeze-ups. Operations in the Permian Basin have returned to normal, a Jan. 20 statement from Pioneer Natural Resources Co. showed.
West Texas Intermediate in Midland, Texas, fell by 75 cents to a discount of $15.40 a barrel against Light Louisiana Sweet, the benchmark crude on the Gulf Coast, at 3:53 p.m. New York time today, according to data compiled by Bloomberg. The spread has widened from $8.75 on Jan. 28.
“We’re seeing a bit of a resurgence now, we’ve moved a few unit trains out,” Bruce Carswell, vice president at Permian Basin Railways, which runs two short-line railways that carry oil from the formation, said by phone yesterday. “In the last month, we’ve seen things improve, and more conversations with folks about trying to turn the spigot back on.”
WTI in Midland averaged $11.06 below LLS in January and $10.99 so far in February, both above any month since April of last year.
The Gulf Coast region had 815,000 barrels a day of crude rail loading capacity in 2013, according to U.S. State Department data. All of that capacity is located in the Permian and Eagle Ford basins in western and southern Texas. The region had about 985,000 barrels a day of unloading capacity, mostly on the Texas and Louisiana coast.
Midland, 300 miles (483 kilometers) west of Dallas, is a pricing hub for the Permian Basin crude, the largest onshore U.S. oilfield sitting mostly below western Texas. The basin is expected to produce 1.4 million barrels a day in February, according to Energy Information Administration forecasts.
That would be an increase of about 110,000 barrels a day from a year earlier and 500,000 barrels a day from February 2010. Producers are using improved technology to recover more oil from old wells and find crude in previously untappable rock.