Texas Oil Market With Spare Pipeline Space Shrugs Off Shutdown

(Bloomberg) -- Oil markets shrugged off a spill that shut a pipeline crossing Texas, signaling no immediate shortage of space to haul crude from the region’s prolific Permian Basin to Houston-area refineries.

The 1,200-barrel release Thursday on Magellan Midstream Partners LP’s 275,000 barrel-a-day Longhorn system near Austin started after a contractor struck the pipeline while doing maintenance, according to a company statement. Residents within a 1-mile radius of the spill were evacuated. The leak has been contained, Brian McGovern, a spokesman for the Texas Commission on Environmental Quality, said by email. Longhorn moves regional crudes like West Texas Intermediate to Gulf Coast refineries and export terminals.

“There is enough spare capacity for now to juggle barrels around to other pipelines,” John Auers, executive vice president at energy consultant Turner Mason & Co. in Dallas, said by phone.

The shutdown will affect other pipelines, hubs and markets as Permian producers look for other outlets for their crude, Auers said. More crude is likely to be shipped to Cushing, Oklahoma, the U.S. Midcontinent pipeline hub, and to Corpus Christi, Texas, on the Gulf Coast, he said.

WTI traded in spot markets in Houston and Midland, Texas, is likely to become depressed if the shutdown is prolonged, Auers said. WTI in both locations was steady relative to prices in Cushing, the U.S. benchmark, on Thursday, according to data compiled by Bloomberg.

Long-term Implications

Magellan didn’t have an estimate on how long the line would be down. The federal Pipeline and Hazardous Materials Safety Administration hasn’t issued any orders that would prevent Magellan from resuming service, spokesman Damon Hill said in an email.

Investigators from Phmsa, TCEQ and the Texas Railroad Commission, the state’s oil and gas regulator, are at the site, Hill and McGovern said. Texas Transportation Department and Bastrop County officials are already there.

Longhorn was running at or near capacity amid strong refining and export demand along the Gulf Coast, and an extended shutdown would cause crude inventories in the Houston area to decline, Andy Lipow, president of Lipow Oil Associates LLC in Houston, said by phone. Gulf Coast crude inventories fell 6.07 million barrels in the week ended July 7 to the lowest level in almost six months, the Energy Information Administration reported Wednesday. Supplies at Cushing declined last week to the lowest level since November 2015.

“If it’s down for a substantial period of time, it’s going to impact crude oil available in the Houston market,”  Lipow said. “If it was a significant problem, some refiners might have to reduce their runs.”

To contact the reporters on this story: Laura Blewitt in Houston at lblewitt@bloomberg.net ;Sheela Tobben in New York at vtobben@bloomberg.net To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net Mike Jeffers

Copyright 2017 Bloomberg News.

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