As producers in the Permian Basin deplete prime tier-one acreage, the increasing output has led to a rise in second-tier drilling locations. These sites often yield crude oil with different specifications, typically producing lighter crude compared to the usual WTI Midland grades.
Light U.S. crude has gained favor among global customers due to its low sulfur content and refining characteristics that closely resemble other light grades sourced from the North Sea and Africa. However, recent testing indicates that the gravity of WTI Midland crude is now falling between 41 and 44 degrees, according to anonymous sources familiar with confidential data shared with Reuters.
This gravity range complies with Platts WTI Midland specifications, which dictate a sulfur content of 0.2% or less, with gravity ranging from a minimum of 40 degrees API to a maximum of 44 degrees API. Nonetheless, as the Permian’s crude becomes lighter—indicated by higher API gravity numbers—the likelihood increases that it could transition into the super-light category, potentially altering refinery consumption patterns, according to a Reuters analysis.
Refineries may face challenges as they might need to blend super-light crude with heavier grades to produce key fuels such as gasoline, diesel, and jet fuel. Alternatively, significant investments may be necessary to upgrade refineries, allowing them to process super-light crude.
Currently, WTI crude has a gravity range of 38 to 44 degrees, primarily concentrated in the Midland and southern Delaware basins, as per data from RBN Energy. Analysts from the energy market analytics firm noted that the variability in Permian crude quality is significant, varying considerably across different regions.
The shift towards a lighter WTI Midland could have broader implications beyond the immediate demand from refiners. It may also impact the pricing of the Brent crude benchmark, as WTI Midland is included in the Platts assessment of Dated Brent, contributing to the benchmark’s overall value.
Since the U.S. lifted crude oil export restrictions in 2015, the subsequent pipeline infrastructure developed by midstream operators in Texas and Louisiana has facilitated a surge in American exports, elevating WTI’s status as a significant benchmark in the global oil market. The influence of U.S. crude is underscored by the inclusion of WTI Midland in the Dated Brent assessment last year.
RBN Energy analyst Robert Auers commented that a lighter WTI Midland could diminish its benchmark value. He warned that if the trend continues, the Dated Brent price could drop by as much as $0.50 per barrel.
In response to the changing market dynamics, refiners and pipeline operators have begun discussions about establishing a separate benchmark for lighter grades to distinguish WTI Midland from super-light crudes. As production levels reach record highs, the likelihood of increasingly lighter crude from the Permian is heightened, particularly as drillers turn to lower-quality locations that produce more associated natural gas.
The U.S. Energy Information Administration (EIA) projects continued growth in Permian oil production, as outlined in its October Short-Term Energy Outlook (STEO). The EIA anticipates that advancements in oil well productivity and the recent operational launch of the Matterhorn Express pipeline will alleviate capacity constraints related to associated natural gas, thereby enabling further crude oil production.
Despite the ongoing growth, Goldman Sachs Research predicts that the Permian Basin will experience a slowdown in production growth. According to a July report, the bank projects a 6% increase in production this year, tapering to 4% by 2026, attributing this to the maturation of the basin and the declining quality of its geology.
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