Blending limitations lead to emergence of WTL market

Increasing production of lighter crude in west Texas, combined with a limit on how much of that production can be blended into WTI, has forced producers to market a new segregated stream, referred to as West Texas Light (WTL).

A spot market has been developing for WTL in Midland, Texas, as nearly 45,000 b/d of WTL traded at discounts to WTI Midland between $1-$1.70/bl in the April trade month. May WTL was bid and offered at discounts to WTI Midland of between $1.40-$2/bl yesterday, putting its value at roughly $4.10/bl below the US benchmark in Cushing, Oklahoma. For May delivery to date, 15,000 b/d of WTL Midland trade has been reported.

WTL has also been reported trading at Magellan's east Houston terminal at roughly the same discount to WTI as in Midland, indicating no real location spread at this time. But Houston trade has been limited and that market appears to have some way to go before developing into a relatively liquid trade center.

Because of the increase in spot discussion and trade reported in Midland, Argus launched the WTL Midland assessment today. As the current May trade month runs between 26 March and 25 April, Argus has backfilled assessments starting with the beginning of the trade month. Through yesterday, May WTL Midland's value has averaged $2.70/bl under the Cushing benchmark.

WTL spot market activity at both Midland and Houston is only expected to increase as production rises from the Permian basin and new pipelines are built to bring crude to market.

WTL is the result of blending limitations. This lighter crude was previously blended with other crudes of varying quality to form the more common stream WTI. But the increase in lighter crude production has outstripped WTI blending capacity, leading to the need to segregate into a separate stream and ship WTL along pipelines in batches. Pipelines from the Permian basin to the Gulf coast are increasingly seeking to accommodate this new lighter grade.

Plains' 500,000 b/d Sunrise pipeline from west Texas locations to Midland, and on to Wichita Falls, Texas, includes a tariff for segregated WTL crude, defining it as between 44.1°-50°API gravity.

Enterprise specifies the same API gravity range for "West Texas Light Sweet" in its pipeline tariff for its 620,000 b/d Midland-to-Sealy crude pipeline that is connected to the company's Echo terminal. The line went into service last year and recently expanded its capacity by 45,000 b/d.

Magellan's Longhorn pipeline to Houston does not have a specific WTL-named specification, but WTL fits within the line's crude condensate stream specifications of 45°-55°API.