OREANDA-NEWS. April 26, 2017. Light, sweet crudes have begun to elbow out heavier grades in the largest US refining system, Valero said today during a quarterly earnings call.

Opec and supporting producers that have cut production will have to decide whether they will stay in the US Gulf coast market as domestic crude narrows discounts to medium sours, Valero senior vice president of supply Gary Simmons said. The region may already have seen a floor to the spread between light and medium feedstocks, which has widened back out to favor medium crude since last week, he said.

"I think they [non-domestic producers] recognize that and are committed to maintaining market share here," Simmons said.

Valero said it has maximized lighter crude processing at one unidentified US Gulf coast refinery and in the first quarter shipped west Texas crude to its 210,000 b/d refinery in Pembroke, Wales.

US heavy crude refiners, which are especially concentrated along the US Gulf coast, will this year weigh the discounts of rising volumes of very light, local crude against the throughput reductions that feedstock can force on some facilities. Bullish outlooks for Permian crude output have combined with the impending arrival of an additional 470,000 b/d of Bakken production through the Dakota Access pipeline, which is set to begin service in May.

Domestic production continues to creep lighter, toward condensate, the company said. Heavier refiners often struggle to run light crudes efficiently and must consider whether the feedstock discounts merit cutting throughputs at costly heavy crude units such as cokers.

Valero's midcontinent refineries face more trouble processing lighter crude than its US Gulf coast refineries, which have more options for blending, executive vice president of refining Lane Riggs said. The refining system could increase light throughputs by roughly 300,000 b/d to 1.4mn b/d, from a more typical 1.1mn b/d, Riggs said.

Refineries meanwhile see plenty of domestic and overseas market pull for their output, Valero said.

Increasing crude production will boost industrial demand for distillates, which already improved compared to 2016 consumption thanks to a colder winter and agricultural demand. The company was exporting diesel into Europe and Latin America.

Mexico and South America meanwhile had a much stronger pull on gasoline exports. Demand in Mexico and Brazil should at least keep pace with any improvement in those countries' struggling refining utilization rates, Valero said.