WTI MEH, Midland crudes near one-year lows on weak roll buying, low export demand

Houston — West Texas Intermediate crudes in Houston and Midland, Texas, dropped sharply on the first day of the April/May WTI cash roll period to reach their weakest levels in many months.

April barrels of WTI at the Magellan East Houston Terminal were heard trading early March 23 at a 55 cent/b premium to NYMEX WTI. That was down 40 cents/b from the day prior. The differential has not been assessed weaker than plus 55 cents/b since April 13, when it was at WTI minus 20 cents/b, according to S&P Global Platts data.

In the Permian Basin, WTI Midland was trading at a 20 cent/b discount to NYMEX WTI. That was 20 cents/b lower on the day and the weakest the grade has been June, 23, at minus 25 cents/b.

Refinery runs along the US Gulf Coast are slowly continuing to normalize since a severe winter storm in mid-February crippled the region's power system. That winter weather took as much as 4.4 million b/d of Gulf Coast refinery capacity offline, which impacted demand for crude. However, refinery utilization likely climbed 3.8% last week to 79.9% of total capacity, according to a survey of analysts March 22. But that is still about 3% below pre-storm levels and nearly 10% below the five-year average.

Even though the April NYMEX WTI contract expired on March 22, the Gulf Coast pipeline market continues to trade April as the front-month for several days following that expiration date. Platts will begin assessing May as the front-month on March 26. During the roll period, any remaining barrels or left-over buying appetite can dramatically move differentials as trading activity can be thinner than during other points in the cycle.

"Buying has been down all cycle so now the market is long," one US Gulf Coast crude trader said.

Lingering demand -- still recovering from the winter storm -- coupled with tight arbitrage economics for US crude exports has put pressure on pipeline terminal differentials in Texas.

"There is not enough storage and not enough refiner or export demand in Houston so barrels may need to head to Cushing," one US Gulf Coast crude source said.

Crude differentials in Louisiana, on the other hand, seemed to be holding up. Sources said March 23 that medium sour Mars was bid at WTI plus 15 cents/b and offered at plus 50 cents/b. It was assessed last at WTI plus 40 cents/b. Light Louisiana Sweet was last assessed at WTI plus $2.05/b.