Prices for West Texas Intermediate have been undercut by renewed reports of weaker global oil demand. The reports have sent the $85 seen in April tumbling below $80.
Kristy Oleszek, director of energy analytics at East Daley Analytics, called it a déjà vu to the fall of 2023 when similar reports of lower global demand and anticipation of cuts by the Organization of Petroleum Exporting Countries sent September prices tumbling below $90 a barrel.
In addition, she told the Reporter-Telegram by email, prices are experiencing price adjustments for June. Due to maintenance on the Wink-to-Webster and the Midland-to-Echo III pipelines in June, the price differential between Midland and Houston has climbed 126%.
“As the 1.3 million barrels per day affected by the 10-day outage look for other avenues to market, the market has reacted. Midland to MEH differentials have gone from an April bench of 50 cents to -$1.13 in June. On a positive note, the market appears to be recovering in a timely fashion with differentials returning to 69 cents in July,” she wrote.
East Daley calls the Wink-to-Webster and Midland-to-Echo III a primary artery out of the Permian to the Houston market with 1.5 million barrels a day of capacity. Since it entered operations in the fourth quarter of 2020, Wink-to-Webster has operated at a high throughput, moving an average of 800,000 barrels per day in 2023. Combined with Midland-to-Echo III, the system ran approximately 1.2 million barrels a day on average in 2023 or nearly 20% of Permian demand, which East Daley put at 6.1 million barrels a day last year. Enterprise Products has an undivided joint interest in the system, bringing the system’s aggregate capacity to 1.5 million barrels a day.
East Daley cautioned that the maintenance work is also likely to cause earnings impairments for several midstream companies. Enterprise Products, in its recent first quarter earnings call, said it has notified shippers of the maintenance work scheduled to begin in June and last for 10 days.
According to East Daley’s Crude Hub Model, pipes to the Gulf Coast have about 937,000 barrels a day of excess capacity split between Corpus Christi, Houston and Nederland, based on average flows in 2023. Of this total, about 360,000 barrels per day is capacity to Corpus Christi and Nederland, so the majority of oil will still flow to Houston on less-desirable pipes. For example, ONEOK’s BridgeTex has approximately 360,000 barrels a day of excess capacity. However, due to its high 2023 average blended rate of $2.04 per barrel, the system is not used extensively.
In addition to these destinations, pipes to the Cushing hub in Oklahoma have spare capacity of 449,000 barrels per day and could be a market of last resort. Barrels could flow north from West Texas to Cushing, then south towards the Gulf Coast. However, shippers would need to pay stacked rates well above the negative -$1.25 per barrel spread currently.
In response to the outage, East Daley said producers could opt to empty their storage tanks in May to maximize returns on current inventory and make space to refill in June while the pipes are down.