Midland, Cushing price difference not letting up, report says

HOUSTON — A surge of oil production coupled with a lack of pipeline capacity continue to push down the price of oil in the West Texas Permian Basin, according to a new government report.

Since late 2013, the price of the West Texas Intermediate crude at Midland in the Permian has been significantly lower than the U.S. benchmark price at the pipeline hub in Cushing, Oklahoma.

The price difference has persisted because oil flowing from Permian wells has strained the capacity of the infrastructure carrying it to market, and because of downtime among refineries using the area’s crude oil, the Energy Information Administration said in a report Tuesday.

Benchmark crude was selling at $91.72 per barrel in afternoon trading Tuesday.

The $21 Spike: Texas price gap widens as oil production rises

This year, West Texas Intermediate has averaged about $6.70 less per barrel in Midland than it fetches about 500 miles away in Cushing. At times, the difference between the two prices has spiked to as high as $21. So far this month, the Midland discount has ranged from $7 to $10.

The discount has meant Permian producers who haven’t hedged successfully have had to sell oil for less than prices in other markets, while refineries may get a small boost from cheaper-than-normal feedstock.

New infrastructure under construction now will help move oil from the Permian, and analysts said that additional transportation capacity should reduce the Midland-Cushing price difference by the end of the year.

Magellan Energy Partners and Occidental Petroleum Corp. have joined to build the 300,000 barrel-per-day BridgeTex Pipeline, which will move crude from West Texas to refineries along the Gulf Coast. Plains All American’s Cactus Pipeline will bring another 200,000 barrels of oil per day to Corpus Christi when it opens in early 2015.

The West Texas Revival: Rallying Permian beats anew as heart of Texas oil

Still, it will take more infrastructure to keep pace with the expected production growth in the Permian basin. The Energy Information Administration said that August Permian oil production was almost 1.7 million barrels per day, up 300,000 barrels per day from a year earlier.