Permian drillers are said to sell new lighter crude oil grade

NEW YORK (Bloomberg) -- There’s a new kind of oil coming out of West Texas.

Oil producers in the Permian Basin have started selling a new stream of light crude, said people familiar with the matter, securing a market for the increasingly less dense oil being pumped from the largest U.S. shale play.

Sales of West Texas Intermediate Light, or WTI Light, started in September with deliveries into Midland, Texas, the people said. Most of the supply for WTI Light would likely be coming from more recently drilled parts of the region, such as Loving and Culberson counties, with initial volumes estimated at around 100,000 bopd, they said.

The new stream is being primarily blended to produce so-called Domestic Sweet crude, WTI Midland or benchmark WTI for delivery at Cushing, Okla., the people said. While lighter oil is typically higher-priced, the new grade is being sold at a discount to WTI Midland, the people said.

Separating the light grades would ensure a more consistent specification for the premium crudes, said Sandy Fielden, director of research for the commodities and energy group at Morningstar Inc. There’s a lot of relatively light streams coming out of the Permian, particularly the Delaware Basin, where most of the new drilling is taking place, he said.

"Typically, people try and blend the lighter crude with heavier streams," Fielden said. "But because there’s more light oil, the genuine WTI Midland gets a premium because that’s what refiners want."

WTI Light has a gravity of 45-50 API, lighter than the typical 38-42 API of WTI Midland, the mainstay sweet benchmark.

The sales began after the construction of enough tanks in the region to enable different oil grades to be separated. The new grade will be shipped from Midland in pipelines including those operated by Enterprise Products Partners, Magellan Midstream Partners, Plains All American Pipeline LP, the people said.

Enterprise can transport numerous grades of crude oil, including WTI Light, Rick Rainey, a company spokesman, said by email.

"There’s room for more segregation instead of just West Texas Sour and WTI Midland crudes," Neil Earnest, president of industry consultant Muse Stancil & Co., said in a phone interview. "The growing production from the Permian has given rise to increasing variety of crudes."

Magellan spokesman Bruce Heine couldn’t immediately comment. Plains All American didn’t immediately respond to an email seeking comment.

In fact, the segregation of lighter oil might pave the way for more U.S. crude exports because steady quality of grades that are in demand would ensure regular buyers. "The U.S. has to be competitive in price, a key driver of crude exports," Fielden said. "But it’s more convenient for producers and refiners if the U.S. can compete on quality."