Crude Oil in North America Increases With More Supply

Crude Oil in North America Increases With More Supply ...

The Energy Information Administration (EIA) released its latest outlook on US oil production, reviving the previous year's levels and achieving their forecast in Q3 of 2023, which contrasts with the recent emphasis on producer headwinds: weather-related disruptions, supply chain disruptions, rising costs, and labor shortages.

The tone on disappointing production levels contradicts the longer-term trend: North American crude output is expected to continue to rise. With increasing production, improved midstream infrastructure since 2018, and a shrinking North American refining system, WTI export volumes from the United States Gulf Coast are set to set new records.

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The slope of production growth is hazy.

The Permian is leading with over 5 million barrels per day of supply, growing by another 1 to 2 million BPD by 2024. Global crude and refined product shortages are causing record pump prices.

Crude Oil Production Forecasts in the Permian Basin North American oil production growth is expected to be led by the Permian Basin, where volumes are expected to surpass pre-COVID highs this year.

Ample Pipeline Capacity

Plains All American, Magellan Midstream, and Enterprise Products have highlighted rising system utilization in their most recent investor reports, which include projections for 2025, which include abundant production opportunities in the region, with the futures curves for Argus WTI Midland and Argus WTI Houston trading at narrow spreads to NYMEX WTI and to each other. On August 30, Argus WTI Midland fell to a low of -17.43 dollars per barrel.

As pipelines expanded, spreads narrowed. Since then, more than 5 million barrels per day have been added, many of which connects production directly to the Gulf Coast. Western Canadian manufacturing delivery capabilities to the Gulf Coast have also been expanded.

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Graphic: Argus WTI Houston vs. WTI Midland The forward curve is narrow, revealing none of the bottlenecks from 2018.

Oil exports are expected to increase.

Although there are ample pipelines to deliver growing oil production to the Gulf Coast, refiners have little room to store more oil there. Since the prior oil production peak, Gulf Coast refining capacity has decreased. A third refinery in Houston will close in 2023, resulting in a combined loss of roughly 750,000 barrels.

Much of the Permian Basin and Western Canadian growth will need to travel to the Gulf Coast's export docks, according to RBN Energy. The effective capacity of area export terminals is expected to be at 6 million barrels per day, allowing for growth from the present levels. In the four weeks ending May 27, exports averaged 3.7 million barrels per day, up from 2.7 million in the first quarter and in line with previous levels. Production estimates suggest that North America may have another 2 to 2.5 million barrels per

EIA US Crude Oil Exports and Export Capacity U.S. export facilities can deliver growing production to global refiners, according to a graph.

WTI is a leader in waterborne export growth.

The Gulf Coast of the United States is expected to be the second-largest source for waterborne crude oil in the future, behind only Saudi Arabia. While heavier Western Canadian grades will also rise, the majority of the increase will be in light sweet crude from the Permian Basin.

The Texas-area benchmarks for this crude WTI Midland and Midland-spec WTI at Houston are already the most active U.S. markets beyond the global WTI benchmark, with futures contracts that traded over 7 million barrels per day in May. WTI is of growing interest to European and Asian refiners who will see WTI Midland become an increasing part of their refinery slate, especially as Russian exports and light sweet volumes from the North Sea are expected to decrease.

When stock stocks are limited and prices are high, uncertainty about the midstream sector's ability to get the product to where it is needed is concerning. WTI will be increasingly available on the US Gulf Coast to alleviate shortages, and will inevitably account for a larger part of the global refinery slate.

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