Texas oils weaken as Phillips 66 works to start Borger refinery

Texas oils declined as Phillips 66 (PSX)’s refinery at Borger, Texas, remained shut for maintenance longer than expected, cutting demand for crude.

Maintenance is still under way at the 146,000-barrel-a-day Borger refinery, Rich Johnson, a company spokesman, said in an e-mail. The plant was scheduled to restart a fluid catalytic cracker Nov. 26, according to a filing with state regulators.

West Texas Intermediate crude delivered in Midland, Texas, declined $1.25 a barrel to a discount of $8.50 to the same grade of oil delivered in Cushing, Oklahoma, at 2:01 p.m. New York time, according to data compiled by Bloomberg. West Texas Sour, another crude grade produced in West Texas, dropped $2 to a discount of $9.50 a barrel.

“The outage is a major contributor to the blowout in WTI- Midland discounts,” Jeff Dietert, an analyst with Simmons & Co. in Houston, said in a note to clients yesterday. “Eliminating the demand from the Borger refinery creates over a 100,000- barrel-a-day shortage of demand/pipeline takeaway capacity in the Basin.”

The Texas grades produced in the Permian Basin fell to a record low of $20 below the benchmark last week as the extended maintenance at Borger contributed to a growing glut of oil amid limited pipeline capacity out of the region.

Texas oil production increased 33 percent to an average of 2.05 million barrels a day in September from a year earlier, Energy Department data show. New drilling techniques have unlocked oil in shale rock formations, boosting the state’s output to the highest level since 1988.

Volatile Market

Trading in the Texas spot crude market has been the most volatile in more than three years. The 60-day historical volatility in Midland crude has more than doubled from its average level in October, reaching 56 percent today, according to data compiled by Bloomberg.

WTI oil delivered at Midland has historically traded less than $1 below the Cushing price, reflecting the transportation costs between the two delivery points. This year, the oil has traded at an average discount of $3.35.

Pipeline projects are under way to provide more capacity from the region, including Magellan Midstream Partners LP (MMP)’s plan to reverse the flow of the Longhorn pipeline to take crude from West Texas to Houston expected early next year.

In Canada, Western Canada Select for January delivery weakened by $2.25 a barrel to a $29.50 discount against WTI, according to Net Energy Inc., a Calgary physical crude broker. Western Canada Select is a heavy oil blend from Alberta primarily sourced from oil sands bitumen.