WTI arb between Midland, Houston improving

OREANDA-NEWS. April 02, 2015. The premium of West Texas Intermediate (WTI) at the Magellan East Houston terminal over WTI Midland, Texas, has been widening, making Houston increasingly profitable when compared to the value of light crude at Cushing, Oklahoma.

Since 18 March, the Argus quote for WTI Houston has been discussed or traded at premiums to WTI Midland ranging between \\$3.22/bl to \\$4.17/bl. These premiums have fallen within the potential cost of transportation to move a barrel of WTI crude from Midland into the Magellan East Houston terminal, using either the 300,000 b/d BridgeTex or the 275,000 b/d Longhorn pipelines.

While transportation costs differ for different shippers depending on whether or not they are committed shippers on the lines, it is possible to estimate the lowest and highest potential cost using public tariff information for both lines into Houston.

Earlier in March, WTI Houston price spreads to WTI Midland occasionally fell above the highest potential transportation cost on either Longhorn or BridgeTex, indicating that there was increased value for sellers to move their production to the Houston market. Effectively, current prices for WTI at Houston mean that the arbitrage to Houston from Midland has deteriorated somewhat since the middle of March. But since the start of this week WTI Houston spreads to WTI at Midland have been over \\$4/bl and close to the higher end of potential transport fees after falling to a low of \\$3.22/bl on 24 March, just prior to the expiry of the April trade month.

In contrast, WTI Midland averaged a 41?/bl discount to WTI Cushing during the March calendar month but has traded at small premiums to the Cushing price for the past three sessions, making moving barrels from Midland to Cushing a zero gain proposition.

Prices for light crude at Cushing have been pressured by increasing crude stocks at the WTI pricing hub, which last week rose by almost 2.7mn bl to a total of just over 58.9mn bl.

In recent months, the value at Midland added to transportation costs to Houston has not been a good indicator of the true value of WTI at Magellan's terminal. The Houston market is continuing to develop and become more actively traded as well as increasingly responsive to refinery demand around the Houston and Beaumont areas.

Prior to the start-up of the BridgeTex pipeline during the third quarter of last year, bottlenecks at Midland had weighed heavily on the price of WTI at that location and disconnected it from the Houston market.