Portfolio Manager’s Update – February 2019

The price of West Texas Intermediate (WTI) is now hovering around $57/bbl., not far from our long price target of $60. We have long said that a price of $60 would satisfy most of the Permian producers and leave most other productive areas that are able to produce large volumes of oil struggling for profitability.

A $60 WTI price contrasts to nearly $70 for Brent crude coming out to the North Sea. While $70 is plenty to offset lifting costs in the Middle East and is quite profitable for Russia because of the authoritarian government and low local costs, it is not quite high enough to take pressure off the Saudis’ budget needs.  Pipeline connections to be completed in the Permian this year will bring new volumes and profits for our portfolio companies and keep some pressure on prices. This scenario is the sweet one for the Permian.