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I Want to Take You Higher - How Much Will the Midland-Houston WTI Price Spread Widen as Oil Flows Shift?

Over the past three-plus years, Corpus Christi has dominated the U.S. crude oil export market, largely because of the availability of straight-shot pipeline access from the Permian to two Corpus-area terminals at Ingleside — Enbridge Ingleside Energy Center (EIEC) and South Texas Gateway (STG) — that can partially load the huge 2-MMbbl VLCCs (Very Large Crude Carriers). But capacity on the pipes to Corpus is now nearly maxed out and, with Permian production rising and exports strong, an increasing share of West Texas crude output is instead being sent to Houston on pipelines with capacity to spare. The catch for Permian shippers with capacity on Permian-to-Houston pipes is that the Midland-to-MEH (Magellan East Houston) price differential for WTI has been depressingly low —$0.22/bbl on average this year, compared to almost $20/bbl for a few months in 2018 and averaging $5.50/bbl as recently as 2019. However, the Midland-to-MEH WTI price spread looks to be on the verge of a rebound of sorts, as we discuss in today’s RBN blog.

A few months ago, in Calling the Shots, we said that exports are, well, calling the shots in the U.S. crude oil market. Lower 48 oil production now averages about 12.5 MMb/d — Alaska adds another 400 Mb/d — the highest level in three and a half years and only a tiny 1.5% away from where production peaked pre-COVID. And exports out of the Gulf Coast? They’ve averaged nearly 3.7 MMb/d so far this year, according to RBN’s weekly Crude Voyager report, a gain of about 500 Mb/d over 2022 (which was no slouch). With WTI prices now flirting with $90/bbl and OPEC+ keeping a lid on its output, continued growth in both U.S. production — the vast majority of it in the Permian — and export volumes are definitely in the cards.

It also seems likely that Corpus’s share of export volumes may have topped out, at least for now. Don’t get us wrong, Corpus is still the big dog. It handled 60% of Gulf Coast export volumes last year (see Sooner or Later) and has accounted for about the same proportion of exports so far in 2023. Shippers love the benefits that come from piping neat barrels of Midland WTI to EIEC and STG at Ingleside, where the crude can be directly loaded onto VLCCs that can be filled to capacity with only a one-tanker reverse lighter just offshore. It’s hard to beat that situation or those economics in Houston or even the Inner Harbor Corpus terminals, and Ingleside’s magnet-like pull on Permian barrels has left many of the pipes from West Texas to Houston running well below capacity.

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