As Permian producers exhaust prime tier-one acreage amid a surge in output in the basin, second-tier drilling locations tend to yield crude of different specifications, often lighter than the typical WTI Midland qualities.Light crude from the U.S. has been winning over customers globally with its low sulfur content and refining qualities similar to other light grades from the North Sea and Africa.
However, recent testing has found that the gravity of WTI Midland is between 41 and 44 degrees, anonymous sources with knowledge of confidential data have told Reuters.This range is within the Platts WTI Midland specifications, which have a sulfur content of 0.2% or less and gravity of not less than 40 degrees API and not more than 44 degrees API.
But the lighter the Permian crude gets – with higher AI gravity numbers – the chances are higher that it could fall into the super light category and change the way refineries are consuming it, according to a Reuters analysis.
Refiners may need to blend super light crude with heavier grades to process it into the key fuels gasoline, diesel, and jet fuel. Or they may have to invest, a lot, into refinery upgrades and convert crude units to process super light crudes.
The WTI crude has a gravity of between 38 and 44 degrees, and this API gravity is concentrated in the Midland and southern Delaware basins, according to RBN Energy.“But to say that Permian crude oil quality varies is an understatement at best — it varies widely from one part to the next,” analysts at the energy market analytics firm say.
After the U.S. allowed crude oil exports in 2015 and after midstream operators seized the opportunity to build pipelines in Texas and Louisiana, leading to the U.S. Gulf Coast export terminals, American exports soared and made WTI a more influential benchmark in the oil markets.So influential has the U.S. oil become that WTI Midland was included last year in the Dated Brent assessment.
“A lighter WTI Midland will just weaken the benchmark because WTI Midland now becomes slightly less valuable,” RBN Energy analyst Robert Auers told Reuters.If WTI Midland keeps getting lighter, it could weaken Dated Brent price by $0.50 per barrel, according to the analyst.
Stakeholders, including refiners and pipeline operators, have started to talk about the need to have a benchmark for a lighter grade to differentiate WTI Midland from super light crudes, Reuters’s sources said.
The implications of a lighter WTI Midland could go beyond the future demand for crude from refiners. It could even influence the price of the Brent crude benchmark as WTI Midland is now part of the Platts assessment of the Dated Brent, part of the Brent benchmark as one of several grades underpinning the contract.
Chances are that crude pumped from the Permian could become increasingly lighter as output continues to rise to record highs and drillers are moving to lower-quality locations with more associated natural gas at wells.
The U.S. Energy Information Administration (EIA) expects in its October Short-Term Energy Outlook (STEO) that the Permian oil production will continue to increase, thanks to ongoing improvements in oil well productivity. In addition, the Matterhorn Express pipeline, which recently began operation, will help alleviate constrained takeaway capacity for associated natural gas and allow for additional crude oil production, the EIA said.
The Permian, the biggest U.S. oil basin, is headed for slower – but still robust – growth, Goldman Sachs Research said in a July report.
The Wall Street bank expects technological and efficiency gains to keep driving Permian production growth, but as the basin is maturing, “its deteriorating geology will weigh on the production of crude oil down the road.”Goldman expects Permian crude production growth will likely slow to 6% this year and to 4% in 2026.
Source:https://oilprice.com