US production of ultra-light oil surges in Texas and Oklahoma markets

NEW YORK / HOUSTON (Reuters) – Texas' growing production of extra-light oil, worried about its quality compared to other types of crude oil, is slowing shipments in the US's main storage center. Oklahoma, thus draining the supply and compounding the problem. in Texas.

In recent months, the drillers have produced more oil called West Texas Light (WTL), a type of crude oil different from that blended with the Cushing (Oklahoma) hub to produce the benchmark American oil grade.

Cushing, which currently has 46 million barrels of storage, is one of the largest blending markets in the world, where light and heavy crude are blended to produce this blend, which is deliverable against reference futures. in the USA.

Pipeline companies began requiring shippers to separate ultra-light oil, fearing that the quality would be too light and too different from other crude collected in West Texas. This slowed shipments in March, as oil must be sent in batches, rather than mixed in the chain with crude, and must also be stored separately.

Separate shipments of WTL are increasing in April, while non-North Dakota and Canada grades are expected to remain low, creating chaos for mixers that combine the available crude to create the reference mix.

The shortage of good mix has led to a rise in short-term prices in Cushing, traders said. Standard futures on the first month's gross reached a high of $ 64.79 this week, a 10-cent premium over next month's contract. This is the first time since October, indicating short-term supply issues.

"The fear is that components to integrate with WTI remain a problem," said Scott Shelton, broker at ICAP in Durham.

On the other side of the pipeline, the Midland, Texas oil markets are collapsing as inventories rise and production increases. Inventories in the country reached more than 20 million barrels in early April, against 5.6 million barrels in mid-February, said Genscape, because of the reduction in outflows.

Midland prices are trading near a $ 7 a barrel discount over crude futures, the lowest since December, against $ 3.50 on Tuesday.

LOTATION AND FUSION

Ultra-light oil now accounts for nearly 15% of current Permian production, or about 4.2 million barrels per day (bpd), sources in the market said.

Crude lines usually have a common flow to mix shipper crude, but that changes. Plains All American, which connects the Basin line to Cushing, recently asked shippers to separate WTL in order to "maintain the integrity of the common flow," adding that it could refuse shipments otherwise.

Crude volumes on the segment of this pipeline from Wichita Falls to Cushing decreased by about 65,000 barrels a day in March, Genscape says, reporting "batch processing issues," said Ryan Saxton, Transportation Manager. Oil at Genscape.

Some traders said that badembly problems could be short-lived, as more pipelines linking the Permian to the Gulf Coast will come online this year to facilitate exports and if the flows from others regions is recovering. The gap at the beginning of the month Thursday slowed down to return to negative territory.

At the moment, traders are trying to find the right tanks for storage in Cushing and are supplying enough mix components for the crude to meet quality requirements.

"I have been doing it for over 10 years and I have never seen it happen, people panicking as they are right now," said a trader.

There were shortages of other types of crude. Heavy crude is in high demand after sanctions imposed on Venezuela and cuts in production in Canada. Interruptions in winter production have reduced the supply of light crude oil from North Dakota and Colorado, also mixed with Cushing.

"Unless you're a major player able to find what you need, when you need it and with the volumes you need … it's very difficult to get all the ducks in a row." Said John Zanner, energy badyst. for RBN Energy.