Midland WTI at First Premium to Cushing Since 2010 on Longhorn

West Texas Intermediate crude on the spot market in Midland, Texas, rose to its first premium since 2010 to oil in Cushing, Oklahoma, as a pipeline connecting the Permian Basin and the Gulf Coast prepares to start.

Magellan Midstream Partners LP expects in mid-March to begin filling its reversed Longhorn pipeline system, which will carry crude to the Houston area from Crane, Texas, said Bruce Heine, a Tulsa, Oklahoma-based spokesman for the company. The pipeline will begin deliveries of about 75,000 barrels a day in mid-April and expand to 225,000 in the third quarter.

“When the Longhorn starts up, that’s the important one for the Permian, and I expect line fill is currently going on now,” said Amrita Sen, chief oil market analyst for Energy Aspects Ltd. in London. “Essentially, the Permian is starting to clear up as these phase-one pipelines come online.”

WTI in Midland strengthened by 40 cents to a premium of 5 cents a barrel to crude in Cushing at 4:16 p.m. New York time, according to data compiled by Bloomberg. It’s the first premium since May 21, 2010.

West Texas Sour in Midland strengthened by 75 cents to 10 cents a barrel below WTI in Cushing, the smallest discount since March 3, 2009.

Light Louisiana Sweet oil, the benchmark light, low-sulfur crude on the U.S. Gulf Coast, weakened by 35 cents to a premium of $20.20 a barrel over WTI in Cushing. Heavy Louisiana Sweet slipped 50 cents to $20.35 over WTI. Mars Blend, a medium-sour crude, saw its premium to WTI fall 90 cents to $15 a barrel.

Cushing Competition

Sunoco Logistics Partners LP plans to start flows during the second quarter on two pipeline projects to move more crude out of west Texas.

The company’s West Texas Gulf project is transporting 40,000 barrels a day from the Permian to the Houston, with another 70,000 barrels a day of capacity to Longview, Texas, and Nederland, Texas, set to come online in the second quarter.

Sunoco also expects to begin pumping 90,000 barrels a day on the Permian Express to Houston from Wichita Falls, Texas, during the second quarter.

The light, sweet oil flowing to the Gulf Coast from West Texas will compete with crude moving south from Cushing on Enterprise Product Partners LP and Enbridge Inc.’s Seaway pipeline. Historically, the price of spot crude in Midland was at a small discount to Cushing to compensate for shipping costs from Midland to Cushing, but going forward the two prices could trade in a narrow band around parity.

“I don’t think it’s unreasonable to watch those barrels compete back and forth now,” said Stephen Schork, president of the Schork Group Inc., an energy advisory company in Villanova, Pennsylvania.

Stronger Heavies

Dense, high-sulfur crudes on the Gulf Coast, traditionally cheaper than light, sweet crudes because they are more difficult to process, could see their value rise as refiners need them to blend with the light oils from West Texas and Cushing.

“Expect Maya differentials to tighten,” Schork said, referring to the heavy Mexican crude. “You need a certain quantity of the heavier sour crude to get the medium sour that’s the optimal cocktail for Gulf Coast refineries.”

The differential between Light Louisiana Sweet and Maya weakened to $8.16 a barrel on Feb. 27, the narrowest spread since June 29. The gap was $9.08 today.

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