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Bloomberg
The US shale surge is crashing headlong into a barrage of bottlenecks. From West Texas pipelines to Oklahoma storage centers and Gulf Coast export terminals, the delivery system for American crude is straining to keep up with soaring production. That’s limiting the industry’s ability to take full advantage of growing worldwide demand, with US barrels forced to take an almost $9-a-barrel price discount to international crude.
Barclays Plc analysts predicted “a new shock†for energy markets as a dearth of pipeline capacity near a key Oklahoma storage hub threatens the flow of oil. Pipeline shortages in Texas’ Permian basin, meanwhile, may not clear until late 2019. The problems undercut hopes American output will stabilize global prices.
“When you’re forced to truck barrels about 500 miles to the Gulf Coast — yes, that’s as inefficient as it sounds — the price differential ‘blows out’ to levels seen recently,†Raymond James & Associates analysts wrote in a note. To account for higher shipping costs, crude sold from Midland, the Permian’s unofficial capital, now sells for almost $18 a barrel below Gulf Coast prices, according to data by Bloomberg.
Permian production is set to be “materially above†local refining and transportation capacity for the next 12 to 18 months, the Raymond James analysts, led by Darren Horowitz, said in a note.