Dumbbell Crude -- March 23, 2015

This is an interesting article; I don't quite understand everything in the article yet, and the article does not address the modifications that refineries along the Gulf Coast have made in the past 20 years in anticipation of the Keystone XL pipeline getting passed.

Reuters is reporting that refiners are turning to trucks to avoid "dumbbell" crudes.

In a pressing quest to secure the best possible crude, U.S. refiners are increasingly going straight to the source.   

Firms such as Marathon Petroleum Corp and Delek U.S. Holdings are buying up tanker trucks and extending local pipeline networks in order to get more oil directly from the wellhead, seeking to cut back on blended crude cocktails they say can leave a foul aftertaste.

While the business of hauling crude from individual oil wells to bulk storage depots or pipeline hubs has become a lucrative niche in recent years thanks to the shale oil revolution, refiners are getting into the "first mile" game for a different reason: taking control of their supply chains to secure a more predictable, consistent stream of crude.

Phillips 66, the nation's fourth-largest refiner, has added trucks and offloading equipment at several of its refineries to help reduce its reliance on oil coming from Cushing, Oklahoma, the nation's biggest crude oil crossroads and storage hub. Here, a growing volume of Canadian oil sands is often mixed with lighter domestic shale crude, resulting in blends that can be less profitable than similar oil fresh from the field.

Phillips 66 executives say operations at its 200,000-barrel-per-day refinery in Ponca City, Oklahoma, only 62 miles (100 km) from Cushing, have improved since it began getting more of its crude directly from wells in the Mississippian Lime shale patch nearby.

"That's really the key," Phillips 66 President Tim Taylor told Reuters. "With Cushing, you can get a blended barrel that hits the spec, but it's not as consistent as you'd like."

Shipping crude by truck, though costly, has become a fast-growing necessity in places like the Eagle Ford in Texas and Permian Basin, newly productive shale oil patches ill-served by small local pipeline networks known as gathering systems.

As a result, truck deliveries direct to U.S refiners have surged to nearly 400,000 bpd nationwide in 2013, doubling since 2010, government data show. Midstream companies including Blueknight Energy Partners and some private equity firms, including Riverstone Holdings, have also invested.

For refiners, the investment is less about profitable logistics than quality control.

This could help explain why even as the price of oil is going down, the price of gasoline is going up. 

The issue of "dumbbell" crudes was an issue a long, long time ago. I won't be able to quickly find posts on the Million Dollar Way -- it was probably back in 2012 or 2013. RBN Energy talked about one aspect of this issue back in March, 2013.

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Kennedy Cold Front With Snow Hitting Chicago, Minneapolis

Five inches of the white stuff at rush hour in Chicago. 

Ten inches in Minnesota.

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That Didn't Take Long 

Starbucks declares victory; ends "Race Together" campaign after less than a week.