“Houston, we have a spot market”

Houston has long been the US capital for the oil and gas industry, a place where office towers full of geologists, accountants and engineers look out on a horizon dotted with refineries and storage terminals. The Houston Ship Channel has been one of the world’s largest hubs for refining, where crude flows in via pipeline and ship, and tankers stream out laden with refined products.

Despite all the activity, there hasn’t been a widely traded crude oil spot market in Houston in decades. But that’s changing. 

Argus has launched a new crude price assessment known as WTI Houston, reflecting the new surge of oil that is arriving in the region. The WTI Houston assessment will be a volume-weighted average of all trades done at Magellan Midstream Partner’s East Houston terminal, the 4.5mn bl storage site where interest in expanded light sweet crude volumes has grown since late last year.

The activity behind the WTI Houston assessment follows the re-plumbing of the country’s oil infrastructure driven by the recent boom in domestic oil output. Pipelines have been reversed along decades-old routes from the coast to the interior, and are now carrying oil from prolific landlocked fields to Gulf coast refining centers. New lines were added, previously unimagined volumes of oil started to move throughout the country via rail, and millions of barrels of new storage capacity built.

For several years, oil from Texas’ Eagle Ford shale, Western Canada Select, WTI and other sweet grades has been arriving at Houston in growing volumes, but critical mass was slow to develop for a spot market similar to the highly liquid Light Louisiana Sweet (LLS) benchmark in Louisiana. Now the activity has finally grown to justify the WTI Houston assessment.

What does this mean? One example is that for the first time ever, one can calculate a better crack spread for the region.  Gasoline in New York Harbor versus light sweet crude at Cushing, Oklahoma, doesn’t give a good picture of reality. But with WTI Houston one can now calculate gasoline, diesel and jet at the Colonial pipeline terminals in Pasadena, Texas, versus WTI at Magellan East Houston – which are only 8 miles apart.

Even with the steep drop in crude prices since last June, the flow of oil is expected to keep coming Houston’s way, supporting the value of a WTI Houston assessment for years to come.

For more information please contact OilBlog@argusmedia.com