West Texas Intermediate (WTI) at Houston may be ascending into the top spot as a US coastal light sweet benchmark, but Light Louisiana Sweet (LLS) remains a reliable secondary benchmark.
WTI Houston trading volumes for July are more than double those for LLS — WTI Houston averaged a record high 459,628 b/d versus 203,632 b/d for LLS. However reported LLS volumes have changed little since Argus launched its WTI Houston assessment in February 2015.
WTI Houston trade started slowly. When reported WTI Houston trade volumes were at 4,000 b/d in February 2015, shortly after Argus launched the assessment, LLS volumes totaled 200,463 b/d. Since July 2015, differentials between the trade-month averages of the grades have been less than $1.75/bl as both continue to reflect wider global economics for light sweets.
Even prior to the lifting of the US export ban in December 2015, LLS was representative of the value of domestic light sweet crude in the international market as it reflected the value of imported foreign light crude into the US. After the ban was lifted, the spread between the calendar-month averages of LLS and Ice Brent has remained relatively range-bound, reaching its widest in April 2018 when LLS was at a $2.31/bl discount to Brent. On the stronger end, LLS narrowed to near-parity with Ice Brent when the grade averaged a 3¢/bl discount to Brent in October 2016.
Since the export ban was lifted, WTI Houston prices have been similarly range-bound with the international marker. But its representation of US shale oil supply versus crude supply at the Louisiana coast accounts for slightly differing spreads. The coastal grade reached its widest average monthly spread to Brent at a $2.95/bl discount in May 2018 and rose as high as a 3¢/bl premium in June 2016.
LLS spot trade volumes remain robust despite shrinking flows on the 1.2mn b/d Capline pipeline that carries light crude from St James, Louisiana, to the Patoka area in Illinois. The Capline pipeline's decreasing volumes began when Plains All American Pipeline brought the 200,000 b/d Diamond pipeline on line from Cushing, Oklahoma, to Memphis, Tennessee in December 2017. According to Louisiana regulatory data, northbound Capline flows have fallen to about 21,300 b/d in May, compared to 400,000 b/d in May 2017. The system virtually shut in January, when flows dropped down to 245 b/d.
A nonbinding open season was launched in October 2017 to gauge interest in a reversal of the Capline, and if the owners decide to move forward, the reversal could be operational in the second half of 2022 at an initial capacity of 300,000 b/d.
Such a move may not have much effect on LLS prices, as the grade has maintained liquidity amid demand from local Louisiana refiners and optionality to move volumes on the water. And although the market for LLS may be changing, there are signs pointing to the US Gulf coast's ongoing need for a light sweet marker for offshore crude and for Louisiana.
