Monday, October 1, 2012

Bakken Pricing To a Premium To WTI -- A Huge Story For Investors in Bakken-Centric Companies

Regular readers know this, but I found it interesting to find it at the Oil and Gas Journal story on RBOB:
In other news, Raymond James analysts said, “The Bakken oil play has become the poster-child for US oil shale growth in recent years. In hand with this remarkable growth curve have come all the typical growing pains of being a land-locked crude—namely, having to succumb to pricing at a transportation differential to an already heavily discounted Cushing, Okla., based WTI price. 
Not surprisingly, with the storage glut still brimming at Cushing (and likely to be fully alleviated until the second half of 2013), Bakken producers have recently sought out higher-priced coastal markets (via rail) in order to bypass Cushing (and the cheaper WTI benchmark).” 
They said many investors don't realize Bakken oil traded at a premium to WTI through most of September. That, they said, is “a clear indication that railroad takeaway capacity out of the Bakken play has reached an effective scale to clear out the Bakken regional oversupply, even during times of refinery turnarounds. 
Moreover, we would pose that Bakken prices have now actually disconnected from Cushing (and WTI prices) altogether and are now finding a price point that reflects the rail transportation cost all the way to the coastal markets (Light Louisiana Sweet or Brent). In our view, this supports a more sustainable Bakken-to-LLS/Brent differential of $12-20/bbl, a substantial improvement from the $40-plus/bbl differentials that Bakken barrels were receiving earlier this year.


  1. Bruce, the October 1, 2012 issue of Bloomberg's Business Week Magazine has a fascinatingly interesting and informative 5 page article "The Oil Hub Where Traders Are Making Millions".

    It explains in detail what is causing the huge back-up of oil in Cushing, Oklahoma's storage tanks, and why some oil producers such as Phillips 66, Statoil, and Hess are starting to lease and purchase their own oil moving rail cars in order to bypass Cushing and move their oil straight to the Gulf Coast refiners.