Crude flowing from North Dakota's Bakken shale is taking a larger share of the U.S. Gulf Coast market, siphoning demand from refiners and exporters for local grades, traders and brokers said.

Bakken crude at Beaumont and Nederland, Texas, traded around a $2 per barrel discount to Light Louisiana Sweet (LLS) on Nov. 20, a spread that has made Bakken crude more attractive.

Rising production in the nation's third-largest shale play has filled pipelines and Midwest refiners' demand for the light, sweet crude, pushing more toward the Gulf Coast on TransCanada Corp.'s (NYSE: TRP) 470-mile Marketlink pipeline to Nederland, Texas.

Bakken crude pricing "is pretty distressed," one trader said. For buyers who can grab it at the Gulf Coast, the crude "is going to look a lot more attractive than the local grades."

Next month, LLS, which is now trading at a more than $8 per barrel premium to U.S. crude futures, will have greater pressure with the opening of Energy Transfer LP's (NYSE: ETP) 300,000 barrel per day (bbl/d) Bayou Bridge Pipeline to the St. James, Louisiana, hub.

Bakken crude has traded around a $15 per barrel discount to U.S. crude futures this week in North Dakota as production topped the region's pipeline takeaway capacity, hitting a record 1.3 million bbl/d last month.

The steep discount has kept Bakken crude at Beaumont and Nederland trading cheaper. LLS's premium to U.S. crude was $8.20 per barrel compared to $5.70 to $6.25 per barrel for Bakken.

The spread between coastal Bakken and LLS is expected to narrow to $1 or below in coming month, market participants said.

"LLS is a blend barrel, and refineries are less inclined to take blends, especially if there is access to a field grade crude," one broker said, explaining why the spread will narrow.

Rising Bakken production making its way to the Gulf Coast helped launch a price assessment for the crude at Beaumont and Nederland. Pricing agency Argus estimated Bakken crude makes up about 185,000 bbl/d of the nation's 2.2 million bbl/d of exports.

The influx of Bakken crude may not be enough to weigh on prices for West Texas Intermediate at East Houston, because the grade commands a larger, more diversified market than LLS, traders said.

Onshore