WTI Midland

There’s a lot going on in North American crude oil markets these days. Exports are running strong. Midland WTI is now deliverable into Brent (but only if it meets specs). Pipelines from the Permian to Corpus Christi are maxed out, pushing incremental production to Houston. The price differential between WTI at Midland and Houston is nearing zero. And the value of heavy Western Canadian Select (WCS) delivered to the U.S. continues to bounce all over the place. Are these unrelated, random events in the quirky U.S. physical crude market, or are they logical developments linked by the economics of refinery preferences, quality shifts, export demand, and logistics? As you might expect, we think it’s the latter. Believe it or not, crude markets sometimes do behave rationally — and, from time to time, even predictably. That’s what we explore in today’s RBN blog.

The Permian Basin’s crude oil market over the last 18 months has exhibited so many dynamic changes that dedicated observers may be suffering from a bit of neck strain, if not outright whiplash. We’ve seen production rise at an unprecedented rate, followed by a period of slower growth. We’ve also watched the Permian very quickly transform from a region desperate for new long-haul pipeline capacity to a hotbed for midstream investment and infrastructure growth. While we’ve closely tracked these big-picture changes, a lot of other, smaller-scale knock-on effects have been occurring too, with potentially significant implications for the basin’s supply pricing and transportation economics. Today, we explain why the changing fortunes of Permian crude haulers may benefit producers in the basin.

A new light sweet crude oil trading market is developing in Houston at the Magellan Midstream Partners East Houston terminal – delivery point for that company’s Longhorn and BridgeTex (50/50 owned with Plains All American) pipelines delivering crude from the Permian Basin. Light sweet crude from the Permian is also known as West Texas Intermediate (WTI) the domestic U.S. benchmark crude - widely traded at Cushing, OK where it underpins the CME NYMEX futures contract.  Today we review the developing market and the price relationships that underpin it.