economics · volumetric value
Price Differential
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Inputs
$/STB
$/STB
Description
Computes the basis differential — the difference between the price actually realized at the wellhead or local delivery point and a published benchmark price (WTI, Brent, Henry Hub, or another regional hub). Pure arithmetic; the value is in choosing the right benchmark for the stream and location being evaluated, not in the formula itself.
Variables
| Symbol | Unit | Description |
|---|---|---|
| Δ | $/STB | Price Differential |
| P_real | $/STB | Actual price received at the wellhead or local delivery point, before any further deductions. |
| P_bench | $/STB | The published benchmark price being compared against — WTI (Cushing) is the standard U.S. crude benchmark; use the appropriate benchmark for the stream and region being evaluated (e.g. Brent for waterborne/international crude). |
Assumptions
- Realized price and benchmark price are quoted for the same date/period and the same unit basis.
- The chosen benchmark is actually the one used to price the stream being evaluated — this calculator does not select a benchmark for you.
Limitations
- This calculator computes an oil-stream ($/STB) differential; the identical arithmetic applies to a gas-stream (Henry Hub) differential, but the inputs here are denominated in oil units — for a gas differential, treat the entered values as $/Mcf conceptually or use consistent units on both sides.
- Does not decompose the differential into its components (transportation, quality, local supply/demand) — a large differential could stem from any of these, and this calculator does not distinguish which.
- A single point-in-time differential; real basis differentials move with pipeline capacity, seasonal demand, and local supply, sometimes substantially within a single quarter.
Use Cases
- → Realized-price reconciliation: Quantify how far a well's actual realized price sits from the headline benchmark price quoted in the press or used in a type-curve economic model.
- → Basin comparison: Compare basis differentials across basins to identify where takeaway constraints are currently the most severe.
Related Calculations
Region Notes
Permian Basin
Has historically shown some of the widest crude basis differentials of any major U.S. basin during periods of pipeline-takeaway constraint, narrowing significantly as new pipeline capacity has come online.
General
Basis differentials are specific to a basin, quality grade, and point in time — do not assume a differential observed once remains representative; re-check against current pricing when using this for a live economic evaluation.
References
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