Oil produced in western Texas fell the most in two weeks as rising production in the region overwhelmed pipeline capacity.
West Texas Intermediate crude delivered in Midland, Texas, dropped $5 to a $15-a-barrel discount to the same grade delivered in Cushing, Oklahoma, as of 3:21 p.m. New York time, according to data compiled by Bloomberg. West Texas Sour, another crude grade produced in West Texas, fell $6 to a discount of $17.50 a barrel.
It was the deepest discount for both grades since Nov. 20, when they reached a record of $20 a barrel below the U.S. benchmark grade.
“The Permian Basin is just awash with crude oil and supplies continue to increase, with a lack of pipeline capacity available until the first quarter,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
Texas oil production increased 33 percent to an average of 2.1 million barrels a day in September from a year earlier, Energy Department data show. New drilling techniques have unlocked oil in shale rock formations, boosting the state’s output to the highest level since 1988.
WTI crude delivered at Midland has historically traded less than $1 below the Cushing price, reflecting the transportation costs between the two delivery points. This year, the oil has traded at an average discount of $3.43 because of pipeline constraints.
Several projects are under way to relieve the bottleneck. Magellan Midstream Partners LP (MMP:US) plans to reverse the flow of the Longhorn pipeline to move crude from western Texas to Houston early next year. Sunoco Logistics Partners LP (SXL:US) plans to complete expansions in the Permian totaling 110,000 barrels a day in the first quarter, Chief Executive Michael Hennigan said during the company’s earnings call Nov. 8.
In Canada, light oil prices strengthened against WTI. Midale, a light oil produced in Saskatchewan, rose $2 to a $13 discount, while Light Sweet Blend rose 75 cents to a $6.75 discount, according to Net Energy Inc., a Calgary oil broker.
Syncrude, a light oil processed from oil-sands bitumen, rose $1 to a 50 cent-a-barrel premium, the broker said.
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