Pricing data has revealed that over the past two months, the price disparity between U.S. shale oil in West Texas and at Houston has expanded. This is due to the shrinking pipeline capacity for transporting crude to the Gulf Coast export hub.
The record crude production in the Permian basin, which spans Texas and New Mexico and is a top U.S. oilfield, combined with the export demand for its light sweet crude resulting from a shortage of this grade from OPEC member Libya, has nearly tripled the price difference compared to last year’s average.
According to data from pricing service Argus, Permian-quality crude arriving via pipeline at the Magellan East Houston (MEH) terminal, the main price assessment point along the Gulf Coast, traded last month approximately 63 cents a barrel higher than prices for the same crude in the Midland center of U.S. shale production. In September, the difference was as high as 74 cents a barrel, in contrast to an average of 22 cents last year. In May, it had briefly widened to around 80 cents because of maintenance on a pipeline from the Permian basin to the Gulf Coast.
Brian Freed, CEO of oil pipeline and storage operator EPIC Midstream, stated, “The pipelines to Corpus Christi (from West Texas) are pretty much full, and the pipelines to Houston are filling up very quickly.” He also predicted that the price difference would continue to widen.
Consultancy Wood Mackenzie’s data indicates that lines from the Permian in West Texas to the top U.S. export port in Corpus Christi, Texas, were about 97% full in September, while lines to Houston were at 73% of capacity. These figures are higher than the averages in 2023, which were 91% on the Permian-to-Corpus lines and 63% on Permian-to-Houston lines.
Dylan White, a Wood Mackenzie analyst, said that the rising Texas shale oil production this year has consumed more of the limited pipeline space along the Permian-to-Houston corridor.
Although oil can still reach overseas markets by rerouting through the Cushing, Oklahoma, storage hub and then moving to the Gulf Coast, most oil producers prefer the more economical option of going directly to seacoast hubs.
Jeremy Irwin, a senior oil markets analyst at Energy Aspects, said, “The market is starting to get nervous with Corpus Christi pipelines full. And Houston really is the only available spare capacity to push Midland quality (crude) to waterborne markets.”
A temporary curtailment of oil exports at major Libyan ports in September had boosted demand for U.S. crude, contributing to the widening of the price spread. Traders noted that light, sweet Midland crude has been a top choice as a Libyan crude substitute, although the curtailment has since eased.
The pipeline constraints may ease next year. Pipeline operator Enbridge ENB.TO plans to add 120,000 barrels per day capacity by 2026, with about 80,000 bpd expected to become available in April. An oil pipeline that was converted last year to carry gas-liquids is expected to revert to crude oil transportation in 2025.
In the meantime, according to the U.S. government forecast, Permian oil output is forecast to rise by 360,000 bpd this year to about 6.27 million bpd. On Friday, top U.S. oil producers Exxon Mobil XOM.N and Chevron CVX.N sketched out plans to boost their shale output next year, which will further increase future pipeline needs.
US Crude Oil Pipeline Squeeze: Gulf Coast Export Hub Prices Surge and Market Ramifications