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Permian oil prices up on new pipeline capacity, but constraints remain, EIA says

Crude prices in the prolific Permian Basin are rising in light of added pipeline capacity moving oil to the Houston, Texas, and Cushing, Okla., hubs even though some bottlenecks still restrict the flow of oil to the Gulf Coast.

"[West Texas Intermediate] Midland prices are now similar to [West Texas Intermediate] Cushing, suggesting the previous pipeline capacity constraints from the Permian region to Cushing have been largely removed," the U.S. Energy Information Administration said March 26. "Conversely, [West Texas Intermediate] Midland prices still trade lower than Houston crude oil prices, suggesting that the region still faces some takeaway constraints in shipping Permian crude oil to the U.S. Gulf Coast."

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Permian crude price spreads widened earlier than expected in the spring of 2018 amid insufficient takeaway capacity and began to narrow in September. Plains All American Pipeline LP's Sunrise expansion to Cushing, which added about 200,000 barrels per day to the Permian system toward the end of 2018, helped to further increase available pipeline space, as did Enterprise Products Partners LP's conversion of its 200,000-bbl/d Seminole NGL pipeline to crude service, which started up on Jan. 31, according to the EIA. Enterprise expects the repurposed line to be fully operational by April.

But the difference between the spot prices of Brent crude oil and West Texas Intermediate Cushing grew in February to average $9 per barrel, which was its "second-widest level for any month in five years," the federal agency said, amid "growing inventories, reduced refinery runs and limited pipeline takeaway capacity from Cushing to the U.S. Gulf Coast."

Three more crude oil pipelines out of the Permian with a combined capacity of 2 million bbl/d are expected to begin commercial service in 2019. The Gray Oak joint venture being developed by Phillips 66 Partners LP, Enbridge Inc. and Marathon Petroleum Corp. would carry volumes to Houston, while Plains and Western Midstream Partners LP Cactus II line would transport crude to Corpus Christi, Texas. The Epic pipeline from Epic Midstream Holdings LP, Noble Midstream Partners LP, Altus Midstream Co. and Rattler Midstream LP will serve Gulf Coast refiners, petrochemical companies and export markets.

Permian crude pipeline projects proposed beyond 2019 have stoked fears of a potential overbuild. Magellan Midstream Partners LP said in a March 25 SEC filing that it will not likely proceed with the joint venture Permian to Gulf Coast pipeline it planned to develop with MPLX LP, Delek US Holdings Inc. and Energy Transfer LP amid competition from a similar project.