Oil Market Turbulence: Weak Refinery Output and Export Demand Hit Midland Crude Prices Along Texas Coast
The Texas oil market is facing a tough period as weak refinery output and sluggish export demand have put downward pressure on Midland crude prices. The price spread between WTI Midland crude in West Texas and Houston has narrowed significantly this year, driven by cold weather disruptions and softer demand on the U.S. Gulf Coast.
In March, the spread between the two pricing points shrank to just 23 cents per barrel, the lowest since November 2023. This is a stark contrast to last year’s 50-cent average, when record Permian oil production and strong export demand widened price differentials.
Weather, Tariffs, and Market Forces Shake Up Prices
Data from Argus shows that WTI Midland crude traded at a $1.08 premium to U.S. crude futures in March, down from February’s 11-month high of $1.22. The February price spike was largely due to harsh winter weather that slashed Permian production by an estimated 1.8 million barrels, according to analysts at Energy Aspects.
Meanwhile, Permian-quality crude at the Magellan East Houston (MEH) terminal—a key Gulf Coast pricing hub—was trading at a $1.31 premium to U.S. crude futures, lower than last year’s $1.47 premium. The drop comes as the market adjusts to a 10% U.S. tariff on Canadian crude, which has reshuffled refinery sourcing strategies.
Midwest refiners, seeking alternatives to Canadian light sweet crude, are increasing their demand for WTI Midland crude at Cushing, Oklahoma. As a result, Permian-to-Cushing pipeline flows are 100,000 barrels per day (bpd) higher year-over-year for the first quarter, according to Energy Aspects analyst Jeremy Irwin.
Cushing crude inventories, which had been near operational lows for months, climbed to 25.7 million barrels last week—the highest level in four months.
Refinery Demand Remains Weak as Exports Decline
U.S. refinery utilization averaged 85.6% for the four weeks ending February 26, reflecting seasonal maintenance ahead of the summer driving season. The net crude input to refiners over this period was 15.5 million bpd, 4.2% lower than early 2024 averages.
Adding to demand concerns, LyondellBasell Industries permanently shut down its 263,776 bpd Houston refinery this month, further reducing processing capacity along the Gulf Coast.
Exports also declined, with U.S. crude shipments dropping by 9,000 bpd to 3.88 million bpd in February. This was partly due to refinery maintenance in Europe, which cut purchasing activity, and China’s recent 10% retaliatory tariff on U.S. oil imports. China accounted for roughly 5% of U.S. crude exports in 2024, and this tariff could further weaken trade flows.
Market Outlook: Temporary Dip or Prolonged Weakness?
Industry experts believe the current narrow price differential between WTI Midland and MEH is temporary. As refinery maintenance season winds down and Permian production continues growing, analysts expect a rebound.
Wood Mackenzie analyst Dylan White predicts that increased use of available pipeline capacity will support Midland prices in the coming months. However, the longer-term outlook remains uncertain, with geopolitical factors, trade tariffs, and demand fluctuations continuing to play a role in market dynamics.
For now, U.S. crude oil remains in a delicate balance, caught between supply chain shifts, export uncertainties, and refinery realignments. The coming months will reveal whether Midland crude prices can regain strength or if this downward pressure will persist.
