Indigenous crude prices from California's oil fields in Kern County are being weighed down as inventories build on pipeline shut-ins, S&P Global Platts data showed Thursday.
Kern River crude was pegged at a $10.00/b discount to US futures benchmark WTI on Thursday, according to Platts assessment data. In May, the discount averaged $6.02/b.
The Kern River discount began widening after the late-May shutdown of Shell's San Pablo crude pipeline -- which carries the heavy crude north to San Francisco Bay Area refineries -- pushed more barrels of crude into storage. The discount widened further after Thursday's shutdown of another leaking crude pipeline, the Crimson.
The San Pablo line is expected to be back up by mid-July, shippers said. The line's shipping calendar showed July 10 as the restart date, but sources said that the actual start-up date will be July 18, barring any further discoveries of problems.
Company spokesman Ray Fisher said in email the line is still being tested and gave no timeline for restart.
The 210,000 b/d San Pablo line usually carries about 140,000 b/d of the heavy crude north to three Bay Area refineries: Shell's 156,400 b/d Martinez refinery; Tesoro's 166,000 b/d Golden Eagle refinery in Martinez; and Valero's 145,000 b/d Benicia refinery.
These refineries have ways to get crude from other countries, so the San Pablo outage is not seen impacting output of gasoline and diesel.
California produced 526,000 b/d of oil in March 2016, according to US Energy Information Administration data, with about 70% of that produced in the oil fields of Kern County. All crude produced in California is refined in the state. The majority of it is heavy, with API between 13 and 16.
With the San Pablo line down, and several refiners undergoing maintenance in the region, West Coast crude stocks have risen since early May. Crude oil stocks in PADD V, which represents the West Coast, were at 61.84 million barrels for the week ended June 17, up 7 million barrels from early May, and the highest since April 2002, EIA data showed this week. Those stock builds were also likely caused by refinery outages in the area.
California producers are scrambling to find places to store their crude, even calling into service tanks at Alon's shuttered Bakersfield and Paramount refineries for storage, and depending on trucks to move the crude from the wellhead to the tanks.
"A true crude storage facility would have ingress and egress such as outlets to pipeline systems and inbound from pipelines. Looks to be just trucks. You know how it goes -- any port in a storm," one West Coast crude trader said.
Sources estimate that California's crude storage outside of the refinery fence range are about 3 million barrels, with 2 million of that in the Los Angeles area and 1 million farther north in the Bay Area.
However, California crude stocks held in refineries fell 3.1% to 16.336 million barrels for the week ended June 17, California Energy Commission data showed. That is 7% higher than the 15.272 million barrels held in storage last year during the same time period.
This was due in part to an increased use of crude processed in the state's refineries. Crude use there rose to 10.98 million barrels last week, or 1.6 million b/d, compared with the 1.52 million b/d run rate the prior week.
On Thursday, California's crude storage problem was exacerbated by the shutdown of yet another pipeline after a leak was discovered.
Crimson Pipeline shut a portion of its line after a worker spotted a leak at 5:30 am PDT (1230 GMT). Emergency officials said that about 700 barrels of crude leaked from the line and were contained.
The pipeline carries inland California crude to three refineries in the Wilmington area: Phillips 66's 139,000 b/d plant, Tesoro's 104,500 b/d plant and Valero's 85,000 b/d plant.
The pipeline was not operating at full rates at the time of the leak, a company spokeswoman said at a news conference Thursday.
Trade sources said the line carries about 50,000 b/d of crude from Carpinteria, California, to the three refineries. All have alternate means of supply, importing crude from Latin America and the Middle East.
A Tesoro spokesman confirmed Crimson was a crude source for Tesoro's Los Angeles refinery.
"At this time, we do not expect this event to have an impact on our ability to fulfill customer product supply commitments," Tesoro's Brendan Smith said in an email.
