Slowing delivery despite increased production of U.S. super-light oil output

Adding to existing concerns about its quality compared with other types of crude, the rapid growth of super-light oil production in Texas has resulted in slowed deliveries into the United States’ main storage hub in Oklahoma, draining supply there and adding to a glut in Texas.

Oil markets in Midland, Texas are slumping as inventories rise and production grows. Super-light oil now makes up nearly 15 percent of current Permian production of about 4.2 million barrels per day (bpd).

Drillers are producing more oil in recent months known as West Texas Light (WTL), a type of crude that differs from what is blended at the Cushing, Oklahoma hub to produce the benchmark U.S. oil grade. Cushing, which currently has 46 million barrels in storage, is one of the biggest blending markets in the world, where light and heavy crude are mixed to produce that blend, which is deliverable against benchmark U.S. futures.

Due to worries that the grade is too light, differing too much from other crude gathered in west Texas. pipeline companies have started requiring shippers to separate the super-light oil. This has slowed deliveries, since the oil has to be sent in batches, rather than mixed in the line with other crude, and also needs to be stored separately. So far in April, segregated WTL deliveries are rising while flows of other grades from North Dakota and Canada remain subdued. Traders say the shortage of the right blend boosted near-term prices at Cushing,

Crude lines typically have a common stream to blend shippers' crude together, but that is changing. Plains All American, which runs the Basin line to Cushing, recently required shippers to segregate WTL in order to "maintain the integrity of the common stream," adding that it could reject shipments otherwise.

Some traders said blending issues could be short-lived as more pipelines from the Permian to the Gulf Coast will come online this year to facilitate exports and if flows from other regions recover.  For now, traders are scrambling to find the right tanks for storage at Cushing and source enough blending components so the crude can meet quality requirements.

There have also been shortages of other types of crude. Heavy crude has been in high demand after sanctions on Venezuela and production curtailments in Canada. Winter production outages have reduced supply of light crude out of North Dakota and Colorado, which are also blended in Cushing.