Higher Permian production, constrained infrastructure increase spread between WTI oil hubs

Permian Basin infrastructure changes

Cushing vs MidlandIncreasing production of crude oil in the Permian Basin in western Texas, and parts of New Mexico, has outpaced pipeline infrastructure to move the crude to refineries, causing prices for crude in the Permian Basin at Midland, Texas to fall below similar crudes priced at Cushing, Oklahoma. While the price difference between Midland and Cushing has been increasing for almost a year, recent refinery outages in the region caused it to widen substantially. Several infrastructure projects that will allow more crude to flow from the Permian to the U.S. Gulf Coast are expected to come online soon, which should cause this price difference to narrow.The latest U.S. Energy Information Administration Drilling Productivity Report DPR estimates that August Permian Basin oil production will be almost 1.7 million barrels per day bbl/d, 0.3 million bbl/d more than a year ago. With increased production, any loss of refinery demand can increase downward pressure on crude oil prices in Midland. A series of recent outages at refineries located in or near the Permian, and along the U.S. Gulf Coast caused the West Texas Intermediate WTI price at Midland to fall $17.50 per barrel below the price at Cushing, a record difference. The previous record was set in late 2012 at a time when production also exceeded pipeline takeaway capacity. In 2013, the price gap closed when Magellan Midstream Partners reversed and repurposed part of its Longhorn Pipeline to move crude from the Permian to Houston. Previously, this pipeline had moved refined petroleum products from Houston, Texas to El Paso, Texas.

via Higher Permian production, constrained infrastructure increase spread between WTI oil hubs – Today in Energy – U.S. Energy Information Administration EIA.

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