Report paints brighter oil pipeline picture

A new reports says crude oil pipeline constraints in the Permian Basin may end sooner than expected and prices will be less affected than previously believed.

The report by analysts at Raymond James says the West Texas region should see pipeline constraints ease by the end of 2019 and that price differences between oil sold in Midland and the Gulf Coast won’t be as severe as once estimated.

The price differential through 2019 for Midland oil compared to Brent, the global benchmark, is estimated at $15 a barrel for 2019, down from the previous estimate of $25 a barrel.

Oil prices for companies pumping in the Permian and selling in Midland that don’t have pipeline space have plummeted as buyers still have to find a way to get the crude from West Texas to the Gulf Coast.

The report highlighted potential bright spots, focusing on the Sunrise and Cactus II pipelines being built by Houston’s Plains All American. The report says both pipelines are being fast-tracked.

Plains All American plans to have part of its Sunrise expansion, which will add 90,000 barrels a day of pipeline capacity from the Permian to Cushing, Okla., online by the end of October, according to filings with the Federal Energy Regulatory Commission, months earlier than the original date of the first quarter of 2019. Cactus II is expected to be online by the third quarter of 2019.

Producers in West Texas are expected to “tap” the brakes rather than stop development, the report says, with Raymond James expecting Permian production to hit 3.8 million barrels per day in December and 4.6 million barrels a day by the end of 2019.