Cash crude discounts approach two-year lows as Texas oil production increases

Apr 12, 2017

West Texas oil production has pushed the value of the region’s spot crude to its lowest discount to the U.S. oil benchmark in nearly two years, as the shale industry continues pumping more to take advantage of higher prices and demand from refiners who have seen supplies cut by top global producers.

As Reuters reports, OPEC and non-OPEC suppliers are working to cut 1.8 million barrels of oil per day to reduce oil inventories and raise prices but those cuts have given U.S. shale producers an incentive to ramp up production.

The Permian basin – located in western Texas and southeastern New Mexico – is the biggest U.S. oil field and the most ripe for shale activity because of its strong reserves and low production costs but aggressive production growth is causing some traders and analysts to warn the activity may be moving too fast, forcing heavy discounts on Midland crude.

On Friday, cash traders sold West Texas oil – the type of crude pumped from the Permian Basin – to one of its steepest discounts since April 2015.