Crude inventories in West Texas dropped this week to the lowest in four months after a converted pipeline began transporting crude from the nation's biggest shale oil field to the U.S. Gulf Coast, data from market intelligence provider Genscape showed.
The drop in storage in the Permian Basin is another sign that new pipelines out of the region have begun to alleviate a crude bottleneck that depressed local crude prices as production overwhelmed pipeline capacity and filled storage tanks.
Crude inventories in the Permian Basin fell to 15 million barrels (MMbbl) in the week to Feb. 19, the lowest since October and down from a record 22 MMbbl in November. That glut had doubled in size from 11 MMbbl in June, according to the Genscape data.
The decline began in mid-November after Plains All American Pipeline LP expanded the capacity of its about 300,000 barrels per day (bbl/d) Sunrise Pipeline.
The drawdown accelerated this month when Enterprise Products Partners LP began shipping crude on a converted natural gas liquids pipeline, the 200,000 bbl/d Seminole-Red line, two months ahead of schedule.
West Texas Intermediate crude at Midland <WTC-WTM> traded at a $1.30 per bbl premium to U.S. crude futures on Thursday, its strongest since January 2018. Midland crude in late August had sold at a $18.25 discount to the U.S. benchmark.
Permian area storage levels could rise again in mid-2019, weakening Midland prices, before other pipeline projects begin, analysts said.
Permian Basin output is expected to hit 4 MMbbl/d in March, a year-on-year surge of over 1 MMbbl/d, the U.S. Energy Information Administration projected this week.
"The next outbound pipeline capacity expansions are not expected until the third quarter of 2019, potentially leading to further constraints and storage builds," said Dylan White, an analyst at Genscape.
Three major pipelines transporting more than 2 million bpd from the Permian Basin to the Gulf Coast are scheduled to open over the next 18 months. They include the 900,000 bbl/d EPIC pipeline, the 670,000 bbl/d Cactus II pipeline and the 800,000 bbl/d Grey Oak pipeline.
U.S. producers, responding to lower crude prices and pipeline constraints, have idled 20 oil drilling rigs in the Permian since December, bringing the region's oil rig count to 473, the lowest since June, according to General Electric Co's Baker Hughes energy services firm.
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