Eagle Ford Oil Prices Trade at a Premium to WTI - Condensate Weaker

Oil Drum
Oil Drum

Eagle Ford oil prices realize a nice premium to WTI and higher API condensates trade at a discount. One of the great advantages the Eagle Ford has over other shale plays is location, location, location. A short commute to the nation's petrochemical backbone means operators realize better oil prices than most areas of the U.S.

Eagle Ford Shale Oil Price Premium

Eagle Ford oil prices trade at a premium to WTI or a discount to LLS depending on who you talk to. Over the past two months, posted Eagle Ford prices have traded at a ~$6-8 premium to WTI and a ~$6 discount to LLS posted prices. That's after spending part of April and May at >$10 premium to WTI and almost parity with LLS.

Eagle Ford Condensate Prices Trade at a Discount to Crude Oil

In 2011, over 36% of reported liquids production from the Eagle Ford was considered condensate and as much as 50% of production today is estimated to be condensate. That's a significant portion of production, so it's important to understand its pricing. A recent article by RBN Energy provides more details in regards to condensate pricing.

....there are 3 principal markets for condensate: (a) sale as crude oil, (b) sale as diluent for heavy crude blending, and (c) processing in a splitter and sold as component products. Refiners find condensate less attractive as a crude oil blend because it produces less of the valuable middle distillate blends. The diluent market is attractive but requires shipment to Canada. Some of the Eagle Ford condensate is being shipped south to Corpus Christi by pipeline and then by barge up the Gulf Coast to St James LA and on up the Capline pipeline to Canada. Midstream players in the Eagle Ford are also developing condensate processing facilities. At the moment, however, we can see from Plains All American posted prices that refiners are paying less for Eagle Ford condensate than they do for crude and then applying a gravity adjustment factor to reduce the price they pay for condensate even further.

Using Plains All American posted crude oil and condensate prices, the RBN articles compares 60.1 API Eagle Ford condensate to crude with a 40-44.9 API:

The average posted condensate to crude discount this year was close to $17/Bbl.

You can read the full write up on crude and condensate prices at RBNEnergy.com

The discount for condensate from crude is ~$12/bbl now, but it has stretched over $20 at times in the first two quarters of the year. Putting both the crude and condensate price pieces together we have a better picture of what operators are being paid in South Texas. Crude oil is more marketable and can easily displace imports at refineries. Add optimal location and it receives a premium to WTI. Condensate with an API of 60+ has more limited use and is trading at a discount to crude and WTI. Overall, with an assumed 50/50 split of crude and condensate production in South Texas, operators are still realizing prices better than WTI. Consider the major operators who can negotiate crude prices pegged to LLS and South Texas liquids are fetching an even better premium to WTI.

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Important Notes:

Condensate has an API gravity of 50+ and falls between natural gas liquids and crude oil on the hydrocarbon spectrum. Condensate is largely produced at the wellhead, but some volumes are captured in gathering systems. 

WTI prices are currently trading at a discount to comparable international benchmarks (Brent). That is the opposite of the historical norm. Cushing, Oklahoma, is lacking adequate infrastructure need to move oil to the Gulf Coast and other demand centers. When that problem is alleviated, we'll likely see a shift in WTI prices, which will change the discussed relationship of WTI and Eagle Ford crude.