Light Houston Sweet assessments to reflect US crude fundamentals

Platts

Platts, a global energy, petrochemicals and metals information provider and source of benchmark price references, is now publishing a daily oil price assessment – Platts Light Houston Sweet (LHS) – that reflects the value of light sweet crude flowing from inland domestic production centers to Houston, Texas. 

Platts LHS is the latest in a series of assessments launched by Platts in response to the significant structural shifts taking place in the US crude market as “tight oil” exploration and development has dramatically increased domestic production and reshaped traditional crude flows and refinery demand patterns. According to the US Energy Information Administration, domestic US crude oil production has reached 7.5 million barrels per day (b/d) as of July 19, the highest levels since 1989.

Houston, currently the location for several Americas refined products benchmarks, is the largest refining center in the US, with 2.2 million b/d of refining capacity. With the rebirth of US crude production nearby, the Gulf Coast port city is undergoing a massive infrastructure renaissance, evidenced by the development of 31 million barrels of crude oil storage and the expansion of local pipeline capacity between storage terminals and refineries by the middle of 2014. Pipelines, including Enterprise/Enbridge’s Seaway and Magellan’s Longhorn, are connecting inland production centers to the US Gulf Coast, with Houston as the main target of these shifting crude oil flows.

“Houston’s superior refining capacity, storage, and waterborne loading infrastructure positions it to become a key pricing hub in the Americas,” said Suzanne Evans, senior manager of Platts’ Price Group. “The prolific Permian Basin – the home of West Texas Intermediate (WTI) – and the Eagle Ford shale are in Houston’s backyard. This new crude oil production, combined with movements of Domestic Light Sweet from the Cushing, Oklahoma, hub to Houston via the Seaway Pipeline, is creating a vibrant light, sweet spot market in Houston.”

Because of Houston’s position as a market center, Evans added, the new Platts price assessment has the potential to become the benchmark for US crude. “Platts LHS price assessment will not only provide a relevant price for regional traders and producers, but it could become a broader reference point for the Americas because of the unprecedented convergence of supply and demand in Houston,” she said.

The Platts LHS assessment takes into account trading on both a flat price and a floating price basis. It reflects 1,000 b/d of ratable crude – for a minimum of 25,000 barrels in total – delivered over the course of the prompt pipeline month on a Free In Pipe (FIP) basis out of three Houston terminals: the Magellan East Houston Terminal, the Enterprise Houston Crude Oil Terminal, and the Oil Tanking Houston Terminal.

Platts uses WTI Midland specifications at East Houston in its LHS assessment, and may normalize Domestic Light Sweet and Eagle Ford bids, offers, and transactions at Houston to a WTI Midland specification basis.

On a related note, on July 1, Platts also introduced a daily assessment reflecting the value of US Gulf Coast propane gas cargoes loading at major US Gulf Coast export centers. Like the LHS assessment, the propane assessment responds to the dramatic increase in US production, specifically significant growth in propane production, which has transformed the US from a net importer to a net exporter of propane. Both the Platts LHS and propane assessments were developed using the company’s Market-on-Close (MOC) methodology – a highly structured, transparent price assessment process based on the principle that price is a function of time. The MOC process in oil identifies bid, offer and transaction data by company of origin and results in a time-sensitive, end-of-trading-day daily price assessment. 

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