All Dressed Up With Nowhere to Go - Permian Differentials Widening on a Wave of New Crude Supplies

Price differentials in the Permian Basin are widening at a rapid pace. The discount for Midland crude to West Texas Intermediate (WTI) at Cushing has widened by over $4/bbl since the beginning of March and the discount to Magellan East Houston (MEH) crude was over $7/bbl yesterday. Permian production is increasing at a breakneck pace as new players are entering the scene. Private equity-backed exploration and production companies (E&Ps) are no longer just acquiring and flipping acreage, as they are being forced to prove their assets are profitable and can generate a return on investment. The combination of large drilling plans from the majors and new production from these smaller operators — with no new pipeline takeaway capacity in sight — has sent Permian crude pricing into a tailspin. Today, we begin a new series on the recent slide in Permian prices, how new producer strategies are contributing to it, and what it means for pipeline space, trucking and midstream infrastructure.

NATGAS Permian Report

The NATGAS Permian Report is a weekly natural gas fundamentals analysis focusing entirely on the key market drivers within the Permian basin. The report contains details and forecasts around natural gas production, demand, and pricing. It offers a summary of pipeline outflows and capacities from the Permian to neighboring regions, outlining the key shifts in flows to the West, MidCon, and Texas intrastate markets. 
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Major Price Shifts for West Texas Crude

Permian crude production is nearing the proverbial “wall.” Producers in the basin have shown no signs of slowing down over the last year, with production ramping up above 3 MMb/d in March 2018. The lack of new pipeline takeaway projects in the area has left those without committed pipeline space high and dry. These producers are being forced to truck volume to any available pipeline injection point that will take their barrels. Marketing companies and shippers with pipeline space are smelling blood in the water and starting to circle. These shippers are able to heavily discount the price they pay producers at the lease.

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