Rockies crude output boosts liquidity, pressures prices

Market: Crude oil
26/12/18

Rising crude production in the Rocky Mountains has boosted spot trade liquidity for light sweet Denver-Julesburg (DJ) basin crude to a record high, while discounts to the Nymex light sweet crude futures contract are at an all-time low.

Reported spot trade volume for DJ Light crude — White Cliffs, Grand Mesa Light (GML), Saddlehorn Light and Pony Light — increased by 5pc to a new high of 110,000 b/d during the January trade month, which ended on 21 December. Roughly 55pc, or 60,000 b/d, was GML and Saddlehorn Light, marking the highest monthly trade volume since deliveries first began in January 2017 on the undivided joint-interest Saddlehorn-Grand Mesa pipeline system from Platteville, Colorado, to Cushing, Oklahoma.

Colorado produced 474,000 b/d of crude in September, up by 19pc compared with 399,000 b/d in crude production a year earlier, according to the latest available data by the US Energy Information Administration (EIA). Annual White Cliffs volumes averaged 118,000 b/d through September, up by roughly 9 percentage points from the same time last year, according to pipeline operator SemGroup.

The rising availability of DJ basin crude in Cushing has pressured prices lower in recent months, with White Cliffs on 18 December touching a $1.25/bl discount to the US oil benchmark West Texas Intermediate (WTI), reflecting its lowest spot value since Argus launched an assessment for the grade in September 2016. Prior to the January trade month, the White Cliffs discount to WTI widened to $1/bl only one other time.

White Cliffs at Cushing averaged a 98¢/bl discount to WTI during the January trade month, down by 44¢/bl from the grade's average 54¢/bl discount during December trade and by 75¢/bl compared with the 23¢/bl average discount one year ago.

The volume-weighted average for all DJ Light deals reported over the month fell by 37¢/bl to a record low discount of 84¢/bl during active January trade. The previous low was a 60¢/bl discount during the June trade month.

The collective volume-weighted average reflected a 10¢/bl premium to the Argus White Cliffs average because of higher tariff rates for the newer streams out of Platteville.

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