January 29, 2018 / 9:09 PM / 4 months ago

Diamond Pipeline disrupts oil flows around U.S.

    By Devika  Krishna Kumar and Bryan Sims
    NEW YORK, Jan 29 (Reuters) - The Diamond Pipeline has
scrambled crude oil flows around the U.S. Gulf Coast and Midwest
since it opened in December, cutting supply at the Cushing hub
and hammering Louisiana oil prices. 
    The line from Cushing, Oklahoma to Memphis, Tennessee, a
joint venture between Plains All American Pipeline LP        
and Valero Energy Corp        , has dented volumes on the
Capline system - the nation's largest crude pipeline that runs
from the Gulf to key refineries in the Midwest. 
    Prices for Gulf Coast crude grades traded in the Louisiana
region have been hit hard. Light Louisiana Sweet (LLS) WTC-LLS
and Mars WTC-MRS - the two main Gulf grades - crashed to
six-month lows versus U.S. crude futures. With lower demand for
Louisiana crude supplies, the LLS grade in particular is more
sensitive to export arbitrage economics and U.S. crude's
discount to Brent WTCLc1-LCOc1 narrowed to the tightest in
more than five months on Monday.
    "Those Capline flows could be backing out LLS barrels into
the St. James area, causing more supply and putting pressure on
prices," Adam Bedard, CEO of Denver, Colorado-based ARB
Midstream said.
    The price for Mars WTC-MRS, a medium sour grade, traded on
Friday at a $1.10 per barrel discount versus WTI crude futures,
the weakest since June. Louisiana Light Sweet WTC-LLS slipped
to a $2.17 premium on Thursday, also the lowest since June.
       
    The LLS grade is delivered into the hub in St. James,
Louisiana, and Mars is deliverable at the Louisiana Offshore Oil
Port (LOOP) facilities in Clovelly, Louisiana. 
    Volumes on Capline, once a major artery for imports and Gulf
of Mexico crude used by U.S. Midwest refiners, have declined
sharply as the U.S. shale boom pushed inland crude to the East
Coast and Gulf Coast. 
    The line can carry as much as 1.2 million barrels of oil
daily from St. James, Louisiana, to Patoka, Illinois but has
seen volumes further eroded by Diamond, which has capacity of up
to 200,000 barrels, traders said. 
    Flows on the Capline trunk line have fallen from about
310,000 bpd in July to about 219,000 bpd in the week ended Jan.
19, while Diamond was just above 150,000 bpd in that week,
according to data from energy intelligence and monitoring firm
Genscape.
     The 440-mile long Diamond line feeds Valero's Memphis,
Tennessee refinery, which has a capacity of about 190,000 bpd.
Valero has historically moved large volumes from North Dakota's
Bakken shale region by rail to Louisiana and then shipped it up
Capline, a long and expensive route, traders said.
    In December, Marathon Pipe Line LLC said it would reverse
Capline, pending agreement among owners, to initially send about
300,000 bpd of crude south beginning in the second half of 2022.
However, if supply is getting stuck in Louisiana as a result of
Diamond, the additional crude from Capline could worsen that
effect.
    The Diamond start-up has helped draw down inventories in
Cushing, traders said. Stockpiles declined by about 2.6 million
barrels in the week to Jan. 26, according to Genscape on Monday,
traders who saw the data said.
    U.S. crude's discount to Brent WTCLc1-LCOc1 hit $3.77 a
barrel on Monday, the tightest since August 21. A wide spread
between the two benchmarks incentivizes U.S. crude exports; the
tightening may have made Gulf grades less attractive for
overseas buyers.

 (Reporting by Devika Krishna Kumar in New York and Bryan Sims
in Houston; Editing by Andrew Hay)
  
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