By DAN MURTAUGH and JOE CARROLL
US oil refiners dropped while producers and midstream
companies advanced on speculation that easing restrictions on
crude exports will raise prices for some of the crude fueled
by the shale boom.
Investors reacted swiftly after Pioneer Natural Resources and
Enterprise Products said the US Commerce Department gave them
approval to export ultra-light crude processed at gathering
in the fields of south
Texas. The ruling is seen as loosening a four-decade old
prohibition against most crude shipments abroad.
Yesterday, the market said theres zero percent
chance well export crude oil, said David Pursell,
an analyst at Tudor Pickering Holt & Co. in Houston.
Today we woke up and theres a finite
Refiners were hit hardest. Increased exports of crude may
reduce the price advantage US plants have enjoyed in recent
years as growing domestic production caused supply gluts
within the countrys borders. US benchmark West Texas
Intermediate strengthened by 93 cents/bbl versus Europe
an Brent oil today.
Phillips 66, the largest US refiner by market value, tumbled
4.2%, the biggest drop in a year. Valero Energy fell 8.3% and
Marathon Petroleum lost 6.3%, both the largest declines since
Pioneer jumped 5.2%. The company said it produces about
43,000 bpd of oil-equivalent from South Texass Eagle
Ford shale, and most of that is ultra-light condensate that
must be stabilized in the field before being transported.
The company petitioned the Commerce Department that the
stabilization method, which involves heating the condensate
in a distillation
tower to remove the
most volatile hydrocarbons, should meet the legal definition
crude, which would make
it eligible for export. The government confirmed that
interpretation, Pioneer said in a statement.
The US produces more than 1 million bpd of ultra-light
condensate, most of which comes from the Eagle Ford, said
Amrita Sen, chief oil economist at Energy Aspects in London.
Most of that condensate goes through some sort of
stabilization process, she said. What isnt known is
whether all forms of stabilization will meet Commerces
approval, according to Sen.
Other producers active in the Eagle Ford benefited from the
idea that they could get global prices for barrels with a
minimal amount of processing. EOG Resources gained 2.7%, the
most since May 6. Chesapeake Energy rose 2.5% and Anadarko
Petroleum climbed 2%.
Enterprise, the largest midstream company by market
capitalization, advanced 1.4% after receiving the same ruling
from the government.
The company will be able to use its pipelines, storage
terminals and docks on the Gulf Coast to keep processed
condensate segregated from non-exportable crude while
transporting it from oil fields to tankers, said
Houston-based spokesman Rick Rainey.
Once exported, the condensate could be used as feedstock
for oil refining
plants, as diluent
to be mixed with heavy crude, or for power generation, Rainey
Other midstream companies with assets in south Texas
benefited from the ruling. Magellan Midstream Partners gained
0.6%, while Kinder Morgan Energy Partners rose 0.4% to the
highest level since Jan. 28.
To the extent that additional condensate is produced in
response to the private rulings, we may see additional
shipments on the Double Eagle Pipeline system which
transports condensate from the Eagle Ford to our terminal in
Corpus Christi, said Bruce Heine, a Tulsa,
Oklahoma-based spokesman for Magellan. With the
terminals multiple existing ship berths that can
accommodate large vessels, we are positioned to serve the
export market if it develops.
Magellan and Kinder are among companies building condensate
splitters along the Texas Gulf Coast. Splitters are simple
refineries, designed to separate condensate into products
like naphtha, kerosene and gasoil that can be exported or
processed further in the US.
Magellans Corpus Christi splitter is fully supported by
a long-term contract with commodity trader Trafigura Beheer,
and wont be affected by the Commerce rulings, Heine
said. Kinder, which declined to comment, has a contract with
BP to purchase the feedstock
and sell the products
from its Houston Ship Channel plant, which will start
operating in November.
Companies that are evaluating splitters but dont have
contracts will likely be deterred by the ruling, and expansion
s of the already-planned
plants are probably now off the table, Michael Blum, a New
York-based senior analyst for Wells Fargo Securities, said in
a research note.
There is a risk you could have some stranded
assets, said Michael Wojciechowski, head of Americas
downstream research for Wood Mackenzie. It does call
into question the viability of and the need for these