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Permian region crude oil prices have increased with additional pipeline takeaway capacity - EIA- The 20th China (Guangzhou ) Int’l tube & pipe Processing Equipment Exhibition
4/10/2019 管材展-钢管展-steel tube expo-tube &pipe expo |
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Crude oil prices in the Permian region have increased since the beginning of the year as two recent pipeline capacity additions reduced some of the takeaway constraints that developed in the middle of 2018. These transportation constraints had forced producers to use more expensive ways to transport crude oil, resulting in lower received prices. The difference between the West Texas Intermediate-Midland crude oil price compared with WTI Cushing and Magellan East Houston crude oil prices began narrowing in September 2018, and they narrowed further in late January 2019. WTI Midland reflects crude oil prices in the Permian production region of western Texas and eastern New Mexico and Magellan East Houston and WTI Cushing reflect crude oil prices at aggregation points in Houston, Texas and Cushing, Oklahoma, respectively.
WTI Midland prices are now similar to WTI Cushing, suggesting the previous pipeline capacity constraints from the Permian region to Cushing have been largely removed. Conversely, WTI Midland prices still trade lower than Houston crude oil prices, suggesting that the region still faces some takeaway constraints in shipping Permian crude oil to the US Gulf Coast. Most recently, the difference has been about USD 7 per barrel, which is less of a discount than in the middle of 2018.
An extension to the Sunrise Pipeline added an estimated 120,000 barrels per day of takeaway capacity from the Permian region in early 2019, which increased pipeline capacity to Cushing. In addition, the Seminole-Red pipeline, which had previously delivered natural gas liquids from the Permian region to the US Gulf Coast, was repurposed to deliver crude oil. Seminole-Red is expected to be fully operational by April, adding an estimated 200,000 barrel per day of takeaway capacity.
Although, EIA expects that growing Permian production could face takeaway constraints again in the coming months, the recent capacity additions could prevent prices from widening back to the levels reached in the second and third quarters of 2018. New pipelines scheduled to come online in the third quarter will alleviate the remaining takeaway constraints in the Permian region.
The recent changes in price spreads could also reflect takeaway constraints out of Cushing, Oklahoma, particularly during refinery maintenance season. Because many refineries in the Midwest use the Cushing crude oil storage hub for operating inventories and some refineries have reduced crude oil intake for maintenance, the overall outflow from Cushing has declined. As a result, Cushing crude oil stocks increased by 4 million barrels from the first week in February through March 15. A similar phenomenon also occurred last October.
Growing inventories, reduced refinery runs, and limited pipeline takeaway capacity from Cushing to the US Gulf Coast is likely contributing to a widening of the Brent crude oil price spread with WTI Cushing. The Brent–WTI Cushing spot price spread averaged USD 9 per barrel in February, the second-widest level for any month in five years
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