published Jul 13th 2017, 4:46 pm, by Laura Blewitt and Sheela Tobben

(Bloomberg) —
A pipeline that hauls crude oil from West Texas’ Permian Basin to Houston shut Thursday after a 1,200-barrel spill near the state capital, Austin.

The release on Magellan Midstream Partners LP’s 275,000 barrel-a-day Longhorn system started after a contractor struck the pipeline while doing maintenance, according to a company statement. Residents within a 1-mile radius of the spill, about 4 miles southwest of Bastrop, Texas, 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 to export.

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

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 en route to 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, Lipow said. Gulf Coast crude supplies 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.

Spare Capacity

The Longhorn shutdown will also affect other pipelines, hubs and markets as Permian producers look for other outlets for their crude, John Auers, executive vice president at energy consultant Turner Mason & Co. in Dallas, said by phone. 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.

“There is enough spare capacity for now to juggle barrels around to other pipelines,” he said.

Supplies at Cushing declined last week to the lowest level since November 2015. Cushing is also the delivery point for the benchmark U.S. West Texas Intermediate crude contract. WTI is one of the crudes carried by Longhorn. August futures rose 47 cents a barrel to an intraday high of $46.28 in the 30 minutes following news of the spill. WTI up 61 cents, or 1.3 percent, to $46.10 a barrel at 12:40 p.m. on the New York Mercantile Exchange.

WTI also trades in spot markets in Houston and Midland, Texas, where it’s likely to become depressed if the shutdown is prolonged, Auers said. WTI in both Houston and Midland was steady relative to Cushing on Thursday, according to data compiled by Bloomberg at 3:52 p.m. New York time.

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 Margot Habiby, Mike Jeffers

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