Gulf Coast Sweet Crude Supply Dwindles
Oil traders are scrambling to secure quickly dwindling supplies of light, sweet crude in the U.S. Gulf Coast, signaling potential declines from shale production and propping up the U.S. market as a clear destination for foreign imports.
Even as traders contend with less light crude, the region remains flooded with sludgier barrels of heavy crude that are harder for some refineries to process. As a result, the spread between Light Louisiana Sweet <WTC-LLS> and Mars Sour <WTC-MRS> widened to $5.30 a barrel on Tuesday, the most in 11 months, according to Reuters data.
The tightness in the market for sweet grades can be explained by a few short-term issues - including an unexpected outage at a major Canadian facility that produces light crude, planned pipeline work and higher prices from North Dakota's Bakken shale play.
Underlying the tighter market, though, may be production declines, according to analysts from Citibank, which has said that "the U.S. crude market is feeling tight even as refiners enter turnarounds."
Storage data suggests crude markets are well supplied, with nearly 457 million barrels in storage, down slightly from the highs seen in April but still at record levels.
Stocks at the storage hub in Cushing, Oklahoma, were at 56.41 million barrels the week ended Sept. 4, down from a record high of 62.2 million barrels in mid-April, according to data from the Energy Information Administration.
Tightness in the light, sweet market comes as Brent's premium to WTI has contracted, narrowing to $1.31 a barrel on Tuesday. The narrower spread, coupled with strength in LLS amid tighter supply, also has potential to open the way for spot imports into the U.S. Gulf Coast, particularly as barrels come out of floating storage, traders say.
"Given where the arb is, it certainly would [support imports]," according to Dominic Haywood, an oil analyst for consultancy Energy Aspects.
Increased imports from West Africa may be among the first to find their way to the U.S. as refiners on the Gulf Coast and Atlantic Coast eye West African grades.
The import window for heavy barrels to the Gulf Coast remains closed.
Prices for Western Canadian Select at Hardisty, Alberta, were trading around $13 a barrel below U.S. crude on Monday, compared with around $10.25 a barrel below the futures market in Cushing, Oklahoma and the Gulf Coast, dealers say. At those prices, it's uneconomical to send Canadian barrels to the U.S. Gulf.
Reporting by Liz Hampton and Catherine Ngai
