Oil boom in Texas causes price distortions

Time to read
less than
1 minute
Read so far

Oil boom in Texas causes price distortions

Mon, 05/14/2018 - 10:59
Posted in:
 Oil boom in Texas causes price distortions (Dabarti CGI / Shutterstock)
Oil boom in Texas causes price distortions (Dabarti CGI / Shutterstock)

The Texas oil industry has recorded a massive production growth in 2017. 3.2 million barrels of oil were produced every day in the Lone Star State, an increase of almost 30 percent over the previous year. Compared to 2016, the increase sums up to even 60 percent.

However, this outstanding boom created huge capacity problems and now this boom is threatened to be stalled by the local pipelines, which are barely able to process this large quantity. The midstream sector is generally plagued by an overburdened infrastructure. Meanwhile, all capacities for pipeline, rail or road are sold out and remedy can only be expected in months, if not years, when new pipes have been approved and built.

Nowhere is this more evident than in the comparison between the trade value of oil in the midland of Texas, where the main boom is taking place, and the West Texas Intermediate (WTI) Benachmark. Due to the oversupply, the oil sort there is sold up to 13 dollars cheaper. In the short term, additives will help. They reduce the friction in the pipelines and thus enable a faster flow velocity, which enables a slightly higher overall capacity.

However, this cannot replace the construction of new pipelines. These new pipelines will furthermore enable Texas to transport oil volumes that are up to now only common in Russia or Saudi Arabia. It is quite possible that in a few years the capacity will already be at almost 6 million barrels of oil per day.

Add new comment

The content of this field is kept private and will not be shown publicly.

Text only

  • No HTML tags allowed.
  • Lines and paragraphs break automatically.
  • Web page addresses and email addresses turn into links automatically.
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.