WTI Houston-Midland narrows on exports, MEH surplus

West Texas Intermediate's (WTI) Gulf coast physical price premium to WTI in west Texas has narrowed in recent months, driven by rising export demand, comparatively higher sour crude prices, and a bottleneck in Houston.

WTI Houston averaged a 15¢/bl premium over WTI Midland during the September trade month that ended last week, narrowing since the January-February trade months when the premium circled 30¢/bl. The average monthly WTI Houston-WTI Midland premium so far this calendar yearis 22¢/bl, down from 35¢/bl trade-month average premium during the same period in 2022.

Demand for Gulf coast exports of Permian-quality WTI to Europe picked up earlier this year when WTI Midland was included with North Sea grades to determine the global Brent crude benchmark price beginning in June. Crude pipeline volumes and shipper commitments moving oil from west Texas to Corpus Christi, Texas, the top export outlet for US crude rose in the second quarter. Some of that WTI traffic to Europe has been pulled to Asia more recently, as Arab grades that Asian refiners often draw on became more costly.

Sweet crude exports have also been supported by higher sour crude prices, which climbed as Opec+ members Saudi Arabia and Russia enforced production cuts on mostly sour crude this summer and the US began refilling the Strategic Petroleum Reserve (SPR) after last year's sales.

WTI at Midland has also been pulled to the key storage and pricing hub in Cushing, Oklahoma, as deep Canadian heavy crude discounts at Cushing makes Permian-quality WTI attractive for blending to meet Domestic Sweet (DSW) benchmark specifications.

Rising outright WTI prices created one final end-of-trade-month pressure point, with some surplus cargoes of WTI Houston left without buyers at the end of the September trade month. Waterborne WTI fob USGC, which usually trades 20-50¢/bl above the WTI Houston pipeline price, approached parity to WTI at the Magellan East Houston (MEH) terminal last week, as some cargoes were left unsold. This led to a briefbottleneck at Houston that helped further lower the WTI Houston pipeline price premium to WTI Midland to 9¢/bl on 23 August.

By Gordon Pollock