The Midland-to-Houston crude oil differential has undergone a dramatic round trip over the past several months. As the charts below show, the spread surged to its highest levels in years during the early months of the Iran war before collapsing back toward historical norms. After averaging less than $0.35/bbl through most of 2023-2025 (left graph), the differential briefly exceeded $3/bbl on a daily basis in April 2026 (right graph) and pushed the monthly average to levels not seen since major Permian pipeline capacity constraints were a recurring concern back in 2018-19.
This time, the widening of the spread was driven less by a shortage of Permian takeaway capacity than by a sudden surge in the value of crude already positioned on the Gulf Coast. As traders grappled with disruptions to Middle Eastern exports and uncertainty surrounding traffic through the Strait of Hormuz, barrels that could immediately access U.S. export terminals commanded extraordinary premiums. The market initially priced in the possibility of a prolonged loss of exportable crude supplies, causing Houston-area grades to appreciate sharply relative to Midland barrels.
As the conflict evolved, however, the worst-case supply-loss scenarios failed to materialize. Alternative export routes emerged, strategic inventories were released, and fears of a sustained global crude shortage faded. Gulf Coast crude premiums subsequently retreated sharply. The collapse of the Midland-MEH differential is also a strong indication that there is currently little transportation constraint between the Permian and Houston. If Permian egress were materially constrained, Midland crude would once again trade at a meaningful discount to Houston. Instead, the spread now back near its long-term range.
