Mini series - The Permian Basin Part 2
As the crude oil production in the Permian Basin is heading towards 3.5 mbpd the infrastructure in the area has come under pressure. This means that a lot of the oil produced here is unable to reach other markets.
The direct results of the insufficient infrastructure for the transportation of oil is shown in the pricing of oil. The crude oil from the Permian basin is priced in the city of Midland, Texas, and has decreased remarkably relative to the Brent future price.
Figure 2 shows that the Midland priced Permian crude called WTM (West Texas Midland) is trading with an unusually large differential to both the WTI (U.S. benchmark for oil) and especially the global benchmark Brent futures. The difference to Brent has been fluctuating around $20 which is about 10 times larger than the average during 2016 and 2017.
This indicates that the oil transportation infrastructure in the area is not sufficient for transporting the oil to other markets. However, there are plans of expanding the infrastructure during 2019 and 2020 which would increase pipeline capacity. More capacity would most likely result in the price difference becoming smaller.
Did you miss the first part of our mini series? Click here to access part 1.