Price Assessment

Light Houston Sweet Price Assessment

  • What is Light Houston Sweet?
  • How we assess Light Houston Sweet
  • Evolution of Light Houston Sweet: a brief history of major changes

What is Light Houston Sweet?

S&P Global Commodity Insights Light Houston Sweet reflects the value of light sweet crude flowing into Houston. The assessment, launched July 26, 2013, covers the information needs regarding the value of new light streams flowing into the US Gulf Coast from the Permian Basin and from Cushing, Oklahoma.

By the second quarter of 2014, over 1.7 million b/d of crude pipeline capacity will be delivering both sweet and sour crude into the area, where 2 million b/d of refining capacity exists and 31 million barrels of crude oil storage will be available this year. This sets the foundation for a new spot market that could potentially reset the structure of benchmarks in the Americas.

These developments beg the need for a benchmark that would fully reflect US Gulf Coast, and global crude fundamentals.

How we assess Light Houston Sweet

The Platts Light Houston Sweet price assessment by S&P Global Commodity Insights employs the Market-on-Close (MOC) methodology used in physical oil and refined product markets. The MOC process encapsulates bids, offers and transaction data to create one value at the end of the trading day. Light Houston Sweet Crude is assessed daily and reflects Market-on-Close (MOC) values at 3:15 PM Eastern Time (ET) and denominated in US dollars per barrel.

We define the location for our Light Houston Sweet assessment as Houston comprised by three terminals: Magellan East Houston Terminal, Enterprise Houston Crude Oil (ECHO) Terminal and the Oil Tanking Houston Terminal. We will consider other terminals in the Houston area as the market continues to develop.

The price of Light Houston Sweet is assessed on a Free-into-Pipe (FIP) basis, where risk and title to cargo shall pass from the seller to the buyer as the crude oil passes the inlet flange of the buyer's pipeline (as defined by Incoterms).

The timing will follow the US pipeline market schedule. The spot month for all US domestic pipeline barrels changes on the first business day after the 25th of the calendar month. The minimum volume considered is 25,000 barrels delivered on a ratable basis throughout the delivery month, and we publish Light Houston Sweet as a fixed outright price. Fixed and floating price information will be considered in the assessment process.

Evolution of Light Houston Sweet: a brief history of major changes

Houston is the central hub for oil refining and processing in North America, and is the location for major benchmarks for gasoline, distillates, jet fuel, refinery feedstocks, natural gas liquids, and gasoline. The rebirth of US domestic crude production in the backyard of the Houston refining center has prompted a massive build-up of infrastructure to connect crude oil production to potential buyers along the Texas Gulf Coast.

At the heart of this infrastructure wave, from Corpus Christi north to Beaumont/Port Arthur, is the greater Houston refining center – where four Houston, one Baytown, and three Texas City refineries total more than 2.2 million b/d of refining capacity.

Compared to Corpus Christi and Beaumont/Port Arthur, Houston has more refining capacity, storage, and waterborne loading infrastructure, which positions Houston to become a key pricing hub in the Americas.

Additional storage is being added and distribution systems are being expanded to handle the 1.7 million b/d of crude oil pipeline capacity, completed and proposed, aimed at the greater Houston/Galveston area. In total, 31 million barrels of crude storage will sit in the Houston area by the end of 2014.

Crude oil pipelines from Cushing, Oklahoma, the Permian Basin, and the Eagle Ford shale have started to bring light crude into Houston this year and will continue to deliver more supply as pipeline expansions and new lines are completed by the middle of 2014.

Following a review of the various crude streams flowing into Houston, S&P Global Commodity Insights determined that WTI Midland will be the quality basis for its LHS assessment due to the expected increase in pipeline flows and the quality consistency relative to Domestic Light Sweet and Eagle Ford.

WTI at Midland is sourced from Permian Basin produced streams, both conventional and unconventional. Field blending is taking place with conventional WTI streams mixed with lighter, lower sulfur unconventionally produced Permian barrels, but the result is a consistent quality without high metals or a "dumb-bell" distillation curve (abnormally high light ends and high residual fuel oil yields for a light crude).