WTI Cushing-WTI Midland spread
The WTI Cushing-WTI Midland spread, a key indicator to watch for Permian producers, continued its downward trend last week. The spread fell to $13.5 per barrel by the end of last week—compared to the highs of $17.8 per barrel in the week ending August 31. However, the current spread is still high compared to the previous month’s low of $12.0 per barrel and the one-year average of $5.3 per barrel.
The weakness in crude oil prices by the end of last week and a slight decline in Permian drilling activity could be the major reasons behind the narrowing of the WTI Cushing-WTI Midland spread. According to Bakers Hughes, the total Permian rig count was 483 as of September 14—compared to 484 the previous week.
The announcement by Energy Transfer Partners (ETP) to proceed with its plans to construct the PGC (Permian Gulf Coast) pipeline could be another major reason behind the recent fall in the WTI spreads. The PGC pipeline would increase the takeaway capacity from the Permian region. The PGC pipeline and a few other major pipeline projects are expected to reduce the pipeline constraint in the region in the next two years.
Impact on Permian producers
The decline in the price differential is positive for Permian producers. The decline improves the average realized sales prices. Major Permian producers are Diamondback Energy (FANG), Pioneer Natural Resources (PXD), and WPX Energy (WPX). Most of the producers hedge a portion of the losses arising due to these price differentials.
Next, we’ll discuss the best-performing upstream stocks last week.