Permian Basin oil production could quickly exceed pipeline capacity out of the region if crude prices remain at high because of the Middle East conflict, East Daley Analytics said on Tuesday.
The firm's analysts said the West Texas Intermediate crude forward curve has recently moved above $70/bbl with WTI Cushing contracts averaging $73/bbl in 2027. And the front-month NYMEX WTI contract is trading above $100/bbl.
East Daley said that although Permian producers continued to embrace capital discipline and moderate supply growth at the start of the fighting, sustained strong prices could change that calculation.
"East Daley believes a sustained prompt price near $100, supported by a forward curve above $70, would meaningfully change producer behavior while also reinforcing global demand for U.S. crude exports," the analysis said.
A prolonged period of WTI prices in the $100/bbl range could lead producers to increase drilling, with East Daley estimating the Permian rig count could rise from about 241 rigs now to about 300 rigs by the end of 2027. Under this scenario, the firm projected Permian crude production could rise to about 7.3 million b/d by 2027, up from its earlier forecast of about 6.8 million b/d.
"While this response would be more muted than in prior $100 price environments -- reflecting continued emphasis on capital discipline, free cash flow generation and inventory management -- it still represents a meaningful acceleration in activity," the analysis said.
The same geopolitical tensions that have sent WTI prices higher are also likely to increase export demand for the oil, as WTI's discount to Brent crude widens. That expected combination of rising production and increased demand comes as Permian takeaway capacity "is highly used" and operating at near capacity, the firm said. Pipelines providing access to loading terminals on the Gulf Coast, such as Cactus II are already operating above capacity while Gray Oak and Cactus III are close to capacity, the report added. Similarly, lines to Houston, such as Longhorn, West Texas Gulf, Permian Express, and Midland-to-ECHO are also at or near capacity.
Sustained higher prices are likely to lead to pipeline expansion projects, according to the analysis. A 120,000 b/d expansion of the 980,000 b/d Gray Oak pipeline and a 220,000 b/d project to return the Midland-to-ECHO 2 pipeline to crude service are already under way, the analysts said, adding that the higher prices also make other expansion projects more likely.
"In a sustained $100/bbl oil environment, higher Permian production and stronger export demand act in tandem, pushing additional volumes onto an already constrained takeaway system. This convergence tightens crude egress, widens basin differentials and increases the likelihood of new midstream investments," the analysis said.
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Reporting by Steven Cronin, scronin@opisnet.com; Editing by Jeffrey Barber, jbarber@opisnet.com
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03-31-26 1442ET
