Crude oil prices in the Permian region increase
Crude oil prices in the Permian region have gone up in 2019 as two pipeline capacity additions forced producers to use more expensive ways to transport crude oil, according to the Energy Information Administration (EIA).
Prices for the West Texas Intermediate-Midland (WTI Midland), which reflects crude oil prices in the Permian production region of western Texas and eastern New Mexico, are now similar to WTI Cushing, which reflects crude oil prices in Houston. The difference is about $7 per barrel.
An extension to the Sunrise Pipeline added an estimated 120,000 barrels per day (b/d) of capacity from the Permian region in early 2019, while the Seminole-Red pipeline will add an estimated 200,000 b/d of capacity in April. These capacity additions could prevent prices from going back to the levels reached in the second and third quarters of 2018. Further, new pipelines due to come online in the third quarter will also alleviate constraints in the Permian region.
Also, growing inventories, reduced refinery runs, and limited pipeline takeaway capacity from Cushing to the U.S. Gulf Coast is expected to contribute to a widening of the Brent crude oil price spread with WTI Cushing.
EIA forecasts the Brent–WTI crude oil price spread will continue to average $9/b until June 2019. When the new pipeline capacity from the Permian region comes online in the third quarter, Permian producers and shippers will have more options to ship to the Gulf Coast, which could narrow the Brent–WTI price spread later this year.
