West Texas SOur

The Permian Basin is awash in light, sweet crude oil that’s cheap to produce and easy to process. It’s so awash, in fact, that supplies are overwhelming takeaway pipeline capacity. The resulting bottleneck in West Texas has cratered prices in Midland, where West Texas Intermediate (WTI) — the region’s light, sweet benchmark — has blown out price-wise against the same grade in other locations, including Houston, with its crude-export docks. Less well known, but influential beyond its geography, is Midland West Texas Sour, or WTS. WTS is suffering from the same wide differentials as WTI at Midland, and those yawning spreads are dragging down the price of Maya, Pemex’s flagship heavy, sour crude. Today, we discuss some surprising ripple effects of takeaway constraints out of the Permian.

Western Canadian Select (WCS) – the benchmark for Canadian crude sold at Hardisty in Alberta fetched just $32.29/Bbl on Friday (July 24, 2015) down 60% from $81.34/Bbl a year ago in July 2014. That year has seen big changes in the U.S. oil market with drilling rig cutbacks and declining new production rates. The challenges for Canadian producers have not changed much in the short term – with transport capacity to market still top of the list. Trouble is that every time transport congestion occurs it pushes price discounts higher and lowers producer returns. Today we discuss the relationship between Western Canadian crude production and prices.

Prices for West Texas Intermediate (WTI) crude at Midland, TX -- close to the Permian Basin production region -- traded at a discount of $7.78/Bbl to WTI at Cushing, OK on Monday of this week (3/10/14), even though the pipeline tariff between the two trading hubs is less than $1/Bbl. Soaring production and tight pipeline capacity out of West Texas mean small changes in the region’s supply balance can cause the discount to blow out - a situation expected to continue at least until the middle of 2014. Today we investigate the probable causes.