Shale boom cuts Gulf oil premium to 24-year low

African Imports

The West African nations of Nigeria, Angola, Gabon and Equatorial Guinea accounted for 58 percent of the light, sweet crude imported into Gulf Coast ports in June 2012. North African nations accounted for a further 30 percent.

LLS will become about $5 a barrel cheaper than Brent during the next 12 months, David Pursell, a Houston-based managing director for Tudor, Pickering, Holt & Co., said in a telephone interview. The discount would take into account the extra cost of getting LLS to other customers, such as refiners on the East Coast, Pursell said.

Like oil in the Midcontinent, the relationship between LLS and Brent has been upended by surging shale production. West Texas Intermediate oil at Cushing, Oklahoma, the U.S. benchmark grade traded on the New York Mercantile Exchange, shifted to a discount to Brent almost two years ago after trading at a premium for decades.

Midcontinent Glut

Cushing inventories surged to 47.8 million barrels in June, the highest level since Energy Department records for the hub began in 2004. The WTI-Brent spread reached a record $27.88 in October. It was at $18.03 a barrel today.

“Over the last year and a half, with the WTI-Brent spread blowing out, the primary beneficiaries have been the Midcontinent players,” Cory Garcia, a Houston-based oil analyst for Raymond James & Associates, an arm of the financial-services company with almost $40 billion under management, said in a phone interview. “As LLS disconnects next year, the benefits to Gulf Coast refiners will be brought to the forefront.”

Enbridge Inc. and Enterprise Products Partners LP reversed the flow of crude on the Seaway pipeline on May 19. The link, carrying as much as 150,000 barrels a day from Cushing to Gulf Coast refineries, is scheduled to pump as much as 400,000 barrels a day early next year.

Shale Production

About 300,000 barrels a day of Bakken oil is being shipped from North Dakota by rail, Al Monaco, Enbridge Inc.’s president, said in a July 11 presentation in Calgary. Some rail deliveries of Bakken are reaching Texas and Louisiana, Lee Klaskow, a Skillman, New Jersey-based analyst for Bloomberg Industries Research, said.

The Bakken formation, which stretches across parts of North Dakota, Montana and Saskatchewan, and the Eagle Ford formation in south Texas produce the majority of shale oil in the U.S., ahead of formations such as Niobrara in Wyoming and Colorado, Bone Spring in Texas and New Mexico and Monterey in California.

Eagle Ford produced about 283,000 barrels a day this June, up from about 98,000 barrels a day in June 2011 and no barrels in April 2008, according to the Railroad Commission of Texas, the state’s oil and gas regulator.

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