More Oil, More Problems as Bottlenecks Stymie Crude Output Surge

(Bloomberg) -- North America's great oil surge of 2018 amid the highest oil prices in more than three years is threatened by pipeline gridlock from West Texas to Alberta and oil investors have yet to fully appreciate the implications, according to Energy Aspects Ltd.

North America will contribute about 1.2 million barrels a day of production growth to the world market this year, just enough to fulfill world demand, Dominic Haywood, an analyst, at Energy Aspects said in an interview at the Argus Canada crude summit. But that forecast is 100,000 barrels a day lower than what was previously estimated and there are high chances that it could be reduced further, which means even higher world crude prices later in the year, he said.

“The recent run in flat prices was due to geopolitics rather than an appreciation that supply might be a little bit tighter than people previously expected,” he said.

The discount to futures of West Texas Intermediate crude at Midland, Texas, widened to as much as $8 a barrel late last month, the biggest in more than three years, as pipelines out of the Permian Basin are operating at their maximum limit. To the north, heavy crude from the oil sands has sold at a discount to futures by as much as $30 a barrel this year as a surge of new production filled pipelines.

The U.S. benchmark has jumped almost 12 percent this year ahead of the decision on Iran by President Donald Trump and rising tension in the Middle East. Higher oil prices have helped propel U.S. crude production to a record this year even as OPEC continues to cut output to rebalance the market.

“When the consensus forecast for supply comes down, then the market will start to pay attention,” Haywood said.

To contact the reporter on this story: Robert Tuttle in Calgary at rtuttle@bloomberg.net.

To contact the editors responsible for this story: David Marino at dmarino4@bloomberg.net, Debarati Roy, Mike Jeffers

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