January 11, 2019 / 7:43 PM / a month ago

Midland crude for fourth-quarter delivery nears strongest in months: traders

HOUSTON (Reuters) - Midland crude for delivery in the fourth quarter is trading at the smallest discount in months in anticipation of the opening of pipelines transporting more than 2 million barrels per day from the Permian basin, the biggest U.S. oil field, traders said.

FILE PHOTO: A pump jack operates in the Permian Basin oil production area near Wink, Texas U.S. August 22, 2018. REUTERS/Nick Oxford

Market participants bought West Texas Intermediate at Midland crude for fourth-quarter delivery for a 75 cent per barrel discount to U.S. crude futures this week, almost $5 stronger than front-month sales, traders said.

As new pipelines begin operation, so-called line fill purchases later this year will “suck barrels into the Gulf,” one trader predicted.

Midland crude for delivery in the fourth quarter was seen between $1.50 and 25 cents below benchmark U.S. crude futures on Friday, and last traded at a $1.10 discount, traders said.

Some traders say the discount may disappear entirely by early 2020, reversing a widening caused by lack of pipeline space. Midland crude had weakened to as much as an $18.15 discount in August, the greatest in six years.

Three major pipelines transporting more than 2 million barrels per day (bpd) from the Permian Basin to the U.S. Gulf Coast are scheduled to open over the next 18 months, lifting the pipeline capacity of the Permian to about 5 million bpd, according to the consultancy Facts Global Energy Group.

Those are the 900,000 bpd EPIC pipeline, the 670,000 bpd Cactus II pipeline owned by Plains All American Pipeline LP and the 800,000 bpd Grey Oak pipeline owned by Phillips 66.

WTI-Midland for delivery in February traded at a $5.30 discount on Friday, compared with a $4.75 a day earlier, near the strongest level since mid-November.

EPIC Crude Pipeline LP this week said the third-quarter launch of a crude pipeline from the Permian to Corpus Christi, Texas is in “some jeopardy” because of U.S. regulatory delays.

Traders said the inland U.S. grade will strengthen as shippers begin filling a converted natural gas liquids pipeline that Enterprise Products Partners LP plans for crude shipments in the second quarter, traders said.

“Linefill buying should be imminent,” one trader said.

Reporting by Collin Eaton; Editing by Steve Orlofsky

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