Midland Crude Prices Plummet Amid Weak Refinery and Export Demand

HOUSTON (Reuters) – The oil market is experiencing significant shifts as the price spread between WTI Midland crude in West Texas and Houston narrows, driven by cold weather impacts on Permian production and a decline in refinery and export demand along the U.S. Gulf Coast. This year, the spread has tightened to just 23 cents in March, marking the lowest level since November 2023. In contrast, the average spread was 50 cents per barrel a year ago, when robust crude production from the Permian Basin and strong export demand for WTI Midland crude widened the price differentials.

Impact of Cold Weather on Permian Production

In March, WTI Midland crude traded at a $1.08 premium to U.S. crude futures, a decrease from an 11-month high of $1.22 recorded in the previous month, according to data from pricing agency Argus. The surge in prices during February was attributed to a significant reduction of 1.8 million barrels in Permian production due to the recent cold weather, as estimated by analysts at consultancy Energy Aspects.

Refinery and Export Demand Pressures

At the Magellan East Houston (MEH) terminal, which serves as the primary price assessment point along the Gulf Coast, Permian-quality crude traded at a $1.31 premium to U.S. crude futures, down from a $1.47 premium last year. The situation has been exacerbated by a 10% tariff imposed by the U.S. government on Canadian crude, prompting Midwest refiners to seek WTI-Midland crude to Cushing as a substitute for Canadian light sweet oil, as noted by Energy Aspects analyst Jeremy Irwin.

Year-over-year, flows from the Permian to Cushing pipelines are tracking 100,000 barrels per day higher for the first quarter. Despite Cushing inventories being near operational lows in recent months, they climbed to approximately 25.7 million barrels last week, the highest level in four months. Energy Aspects has revised its expectations for flows on the BP 1 pipeline, which connects Cushing to BP Plc’s Whiting refinery in Illinois, as well as the Ozark pipeline linking Cushing to refineries in Wood River, Illinois. This adjustment reflects the increased demand from inland refiners for WTI Midland barrels due to tariffs.

Refinery Utilization and Maintenance Trends

According to data from the U.S. Energy Information Administration, the four-week average U.S. refinery utilization stood at 85.6% for the week ending February 26. This decline is attributed to maintenance activities as fuel producers prepare for the upcoming summer driving season. The net input of crude oil to refiners averaged 15.5 million barrels over the last four weeks, representing a 4.2% decrease compared to average levels in 2024.

Additionally, the final shutdown of LyondellBasell Industries’ 263,776 barrel-per-day (bpd) Houston refinery this month has further capped demand. U.S. crude export volumes also saw a decline, easing by 9,000 bpd to 3.88 million bpd in February. This drop is linked to spring refinery maintenance in Europe and China’s implementation of a 10% retaliatory tariff on U.S. oil, with China accounting for approximately 5% of U.S. crude exports in 2024.

Future Outlook for Midland Crude Prices

As America’s excess light-sweet supply struggles to attract international interest, the MEH price is softening to entice international buyers, according to Irwin. However, the narrow price differential between WTI Midland and MEH is expected to be a temporary phenomenon. Wood Mackenzie analyst Dylan White suggests that as the refinery maintenance season concludes in spring, coupled with strong production growth from the Permian, the market may stabilize.

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