I think I have a problem, I have the alchemy extract skill on level 4, I am controlling the character with said skill yet I can't seem to be able to make permanent potions...Is this a bug or has there been some kind of change?

Do you have a variety of alchemy plants, as well as holy water? Holy water is required to make permanent potions; you can get one from a quest in act 2, or it can (rarely) be bough from the battlefield merchants.