East Coast Refiners Seek Texas Discounted Crude Oil

US East Coast refiners are obtaining more shale oil from the Gulf Coast helped by the huge discounts from the West Texas crude, as they plan to ship more oil via rail. However, supply bottlenecks are causing some delays, making it tough to secure more barrels.

From the Permian basin, which is the largest oilfield in the United States, oil producers are pumping more and more volumes of oil.  A major portion of the country’s shale oil comes from the Permian basin, restraining the region’s energy infrastructure.

The pipelines connecting west Texas to the Gulf are currently full, with developers not able to finish new lines until next year. Also, rail terminals are almost solely used for bringing supplies to shale producers. Such supplies include a huge volume of sand, which is used to extract oil from the ground.

The transport traffic could limit the speed of growth of shale production. As the pipelines become full, oil prices in the region are slumping.

Permian basin oil is currently selling at the biggest discount to benchmark US prices in 3 and a half years after the production there swelled to a record high of 3.2 million barrels per day.

Even though US crude futures are trading at higher than $71 per barrel, Texas-based shale is still trading at roughly $58 per barrel.

This has made East Coast buyers to grab the chance to buy less expensive US crude, bolstering flows from the Gulf Coast to the East Coast to 3-year highs. During the December to February period, an average of 2.8 million barrels were transferred from the Gulf to the East Coast every month, based on the figures from the US Energy Information Administration. This is the highest three-month average since the same period in the year 2015.

Several refiners including Monroe Energy and Phillips 66 have been delivering barrels via the sea to their facilities in Philadelphia. Additionally, both companies are also looking into how to transport crude via rail, with pipeline bottlenecks hindering them from increasing volume by sea, according to sources familiar with the matter.

“It’s a niche opportunity with a limited lifetime but that’s what the marketplace needs right now – more takeaway capacity,” stated Phil Dalton, who is the director of crude strategy and development at Murex. Murex is a distribution firm sporting a rail terminal in the Permian basin.

According to PLG Consulting’s estimate, Permian production could reach 4.25 million by September 2019, when the pipeline capacity out of the Permian could be short by around 750,000 barrels per day.

Last week, Murex stated that it would increase more than 2 times the capacity by the third quarter in order to enable its facility to load a unit train of 75,000 barrels of oil daily.

At present, there are 15 rail loading terminals around the Permian region. The terminals have the ability to load 500,000 to 600,000 barrels per day, according to Genscape, a market intelligence firm.

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