U.S. shale producers see rising ultralight crude output hitting pricing

FORT WORTH, Texas, April 17 (Reuters) – Much of the new crude coming from the top U.S. shale field is so light that it is starting to affect pricing for the region’s oil, producers attending an energy conference this week said.

Permian producers generally sell their crude at WTI benchmark prices, but rising supplies of ultralight oil may require them to offer $1 to $2 a barrel discounts to refiners requiring heavier grades, some said. Newer production coming from the Permian Basin in West Texas and New Mexico has API gravity in the low 50s degrees, compared to 40 to 44 degrees for West Texas Intermediate.

Refiners on the U.S. Gulf Coast, whose plants are geared to run heavier crudes, are having to pay higher prices for those supplies because of slowing output and transport problems at heavy-oil producers Venezuela, Mexico and Canada.

Whether buyers increasingly demand a discount for Permian oil “just depends on how much everyone keeps growing the lighter production, and the vast majority of the growth is in lighter crude,” Rob MacAskie, finance chief at Zarvona Energy LLC, said in an interview at a Hart Energy conference in Fort Worth.

Zarvona has been selling its oil, most of which has a gravity of 38-42 degrees, at WTI pricing, he said. The U.S. benchmark generally is classified as 44.1-49.9 degrees.

Price reporting agency Argus Media last week launched a daily WTL price assessment based on trading at Midland, Texas, the heart of the Permian Basin.

The discount for that lighter crude is running between $1 and $2 a barrel, said Allen May, executive vice president at Scala Energy LLC.

Colgate Energy LLC, another Permian producer, has had its output blended with heavier West Texas grades, insulating it from potential pricing pressure, said Will Hickey, the company’s co-CEO.

“The whole world is scared of this really high API. We haven’t seen it (price pressure) yet but it’s something that could happen, he said. “You’re at the mercy of what your acreage produces,” said Hickey.

The Permian produces some heavy oil as low as the 20s, but the average for the field is around 51 degrees, said Allen Gilmer, co-founder of energy research firm Drillinginfo.

Newer production is so light it is “not WTI anymore,” he said.

While producers can blend lighter with heavier grades to raise density, resulting blends often do not have enough middle grades for refiners, Gilmer said. “I could see them turning away a load,” Gilmer said.

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