Analysis: WTI Houston-SGC spread narrows sharply

OREANDA-NEWS. March 19, 2015. The spread between light sweet West Texas Intermediate (WTI) crude at Houston and medium sour Southern Green Canyon (SGC) has narrowed as sour values across the US Gulf coast have benefited from delayed shipments of competing Iraqi Basrah Light imports into the region.

Traditionally the sweet-sour spread at the US Gulf coast has been measured by the spread between Light Louisiana Sweet (LLS) and medium sour Mars, which is delivered into Louisiana from offshore production platforms. But the introduction of the Argus WTI Houston assessment at the beginning of the April trade month now provides an opportunity to gauge the same spread within Texas.

Using Argus data for the price of WTI Houston, the spread between the light crude and SGC has narrowed by around \\$1.87/bl, from around \\$2.30/bl at the beginning of the year to close to 45?/bl at the end of yesterday's trading session. By comparison, the LLS-Mars spread moved in from \\$3.80 or so at the start of the year to about \\$2.50/bl yesterday, a narrowing of some \\$1.35/bl.

Narrowing spreads between sweet and sour grades are mostly the result of firming prices for both SGC and Mars, which appear to be driven by improving middle distillate cracks and delays in incoming volumes of competing medium sour imports out of Iraq.

Distillate cracks at the US Gulf coast have been steadily improving since early January with diesel cracks up from \\$12.50/bl to around \\$18.25/bl, for a gain of \\$5.75/bl. Fuel oil cracks have also firmed, starting the year at discounts of \\$8.55/bl before narrowing to some \\$5/bl yesterday.

On the imports side, supply of medium sour crude has been limited after official Iraqi crude marketer Somo allocated 2.4mn b/d of Basrah Light for April export, down by 280,000 b/d on this month's schedule. The firm has marked down just 180,000 b/d of new production for export on 1-8 April, as it tries to accommodate deferred March cargoes following loading delays of up to 19 days at its southern terminals. High winds cut exports to 2.19mn b/d in February, a 13-month low. Somo initially scheduled 3.3mn b/d for last month.

April exports may also be lower in part because Iraq has asked some producers to curb output of heavier crude to stabilise Basrah Light's quality. Most of the cuts affect 23°API crude produced at the 200,000 b/d Halfaya and 130,000 b/d Missan fields. Heavier crude loads at single-point mooring (SPM) terminals, where gravity dipped below 27°API in January, before rising back above 28°API last month. Buyers have complained about unpredictable SPM cargoes, especially because they have little advance notice of their quality, which complicates refinery planning.