By DAN MURTAUGH
Gulf Coast crude weakened the most in six months versus
global prices after a rally this month amid record demand
from refiners put pressure on fuel margins.
Light Louisiana Sweet for August delivery weakened by
$2.86/bbl to a premium of $1.66 versus Europe
an Dated Brent, according to
data compiled by Bloomberg
. August delivery will
stop trading on July 25. The premium versus US benchmark West
Texas Intermediate sank $2.45 to $1.3/bbl. September LLS was
valued at about $3.35 over WTI, according to broker PVM.
The 3-2-1 crack spread on the Gulf Coast, a rough estimate of
the profit from turning LLS into gasoline and diesel, fell to
$1.17/bbl on July 23, the lowest since December 2012. It
rebounded to $4.74 on July 24.
We expect further weakness in LLS, Amrita Sen,
the chief oil market analyst for Energy Aspects in London,
said by phone. The only way to balance the US system is
for crude prices to fall until you incentivize refinery
The drop followed a rapid run-up in Gulf Coast prices as
refineries two weeks ago processed the most crude since at
least 1992. LLS jumped from a $1.49/bbl discount to Brent on
July 15 to a $4.52 premium on July 23, the highest level
since July 22, 2013.
The jump in prices is drawing more crude cargoes to the Gulf
Coast, including at least four tankers from West Africa since
July 16, according to lists of charters compiled by
Bloomberg. Prior to that there hadnt been a
booking reported since July 3.
Weak Brent prices and high refinery
runs in the US had made
it economic to ship some distressed Atlantic cargoes to Gulf
Coast refineries, Vienna-based JBC Energy said in a July 21
We are now beginning to see some opportunities for
prompt trans-Atlantic arb something that has been exceedingly
rare in the shale boom era, JBC said.
An average of 890,000 metric tons is set to load in the four
weeks including the week of July 27, the most in two months,
according to data compiled by Bloomberg.
Gulf Coast refiners processed 8.62 million bpd during the
week ended July 18, near the record 8.65 million two weeks
The amount of crude in storage in the Gulf Coast divided by
runs, a measure of how
well-supplied the market is, fell to 23 days last week, the
lowest level since February.
LLS is a low-sulfur, or sweet, crude of similar quality to
West Texas Intermediate, the US benchmark priced in Cushing,
Oklahoma, and Brent, which most waterborne oil is priced
From 1983 to 2011, LLS averaged an annual premium of 88 cents
to $4.80/bbl over Brent, as refineries on the Gulf Coast
depended on foreign oil.
The US shale boom, which increased crude production 63% in
the past five years, has brought more domestic oil to the
Gulf Coast, eliminating the need for most light, low-sulfur
crude imports. LLS sank to an all-time low $16.58 discount
versus Brent on Nov. 27.
The recent shift to a premium caught many by surprise, Andrew
Lebow, senior vice president at Jefferies Bache in New York,
said by phone.
Incredibly, sweet looks like its tight, which
would be completely the opposite of market
expectations, he said. We always thought the next
sweet barrel would be easily available.