May 10, 2018 – The Wall Street Journal
Heart of America’s Oil Boom Can’t Fetch Good Prices for Its Crude
In West Texas, an overwhelmed infrastructure has led to crude going for less than $60 a barrel
By Ed Crooks
The main U.S. oil benchmark, West Texas Intermediate, has soared to its highest level in years at $71 a barrel. Good luck getting that price in West Texas.
In the epicenter of America’s drilling boom, crude is going for less than $60 a barrel because oil output there has overwhelmed pipelines that connect the Texas desert to markets along the Gulf Coast and abroad.
U.S. oil prices are splintering because of bottlenecks in the region due to crowded pipelines and worker shortages. Analysts and investors worry such logjams will threaten the profits of Permian producers and slow crude output when the global oil market is already facing limited supplies because of disruptions from Iran and Venezuela. That would propel rising oil prices even higher.
Producers would like to get their oil to places such as Houston, where oil can be loaded onto tankers and shipped overseas. There, the same crude fetches upward of $73.
Created with Highcharts 6.0.4Rising SupplyOil production in the Permian basin hassurged.Source: EIANote: March, April and May are forecasts.
But it could be a year or more until new pipelines catch up with surging production. At the region’s current growth rates, analysts at PLG Consulting expect that close to 200 million barrels of oil will be unable to make it to market in the next 16 months.
“They’re not going to be able to get it all out,” said Taylor Robinson, president of PLG.
Some Permian producers have already locked up space on pipelines, or have used financial instruments to hedge their exposure to these types of price swings. Many say that only a fraction of their output is actually sold at those low levels in Midland, the city in West Texas where the local price of crude is set. But others are stuck watching a rally pass them by.
“If you’re a producer who does not have any firm space at all, you’re going to eat the majority of that $13 or $16” price difference, said John Zanner, an analyst at RBN Energy LLC…
Read the full article here: https://www.wsj.com/articles/heart-of-americas-oil-boom-cant-fetch-good-prices-for-its-crude-1525968441
