The bottlenecks in the Permian have created a widening chasm between not just Brent and WTI, but also WTI in Cushing or Houston and prices fetched for oil in the Permian basin.
Oil output continues to soar in West Texas, despite the fact that the region's takeaway capacity is tapped out. The discount for Midland WTI relative to Houston has surpassed $10 per barrel. “We see further potential downside risks for Midland prices and differentials versus the [U.S. Gulf Coast] and Brent,” Bank of America Merrill Lynch said in a note.
The crude bottleneck could be temporary, however, with a series of new pipelines set to come online next year. That could narrow the discount and perhaps even eliminate it. Bank of America Merrill Lynch goes further, arguing that the export push could open up a premium for Permian oil. “Beyond 2019, excess Permian takeaway capacity could push the Midland-Cushing differential positive as take-or-pay commitments pull barrels directly to the USGC for export,” the bank said.