Forbes: The Real Reason for Jump in Oil Price Today -- Implications for The Bakken

Link here.

The real reason that oil has broken through $100 is neither an uptick in demand nor a potential attack by U.S. or Israel on Iran’s nuclear installations.  The real reason is another step towards rectifying the colossal mistake in the oil infrastructure design in the U.S.

This was written by the same author five days ago:

The reason for the rise in oil price is not the geography of Iran but the geography of Cushing, Oklahoma.

Cushing is the oil tank farm capital of the United States.  It’s a major hub where various pipelines converge.

Cushing is the price settlement point for West Texas Intermediate Sweet Crude Oil on the New York Mercantile Exchange. NYMEX is now owned by CME Group.  This price benchmark is used for oil in the United States.

As the production for Canadian oil sands has increased, Cushing has become a major choke point.  Cushing has turned out to be a colossal error in oil infrastructure planning.

Now, today, the writer expands:

To understand the second big reason behind the move in oil prices we have to understand ‘oil markers’.  Oil marker is simply a term that refers to a crude oil price bench mark based on the variety and grade of the crude oil.  Oil markers are used because there are many varieties of crude oil.


The most well know oil markers are West Texas Intermediate, Brent, Dubai, Isthmus, Tapis, and Bonny Light.  Brent is used more than any other benchmark in the world, however West Texas Intermediate is the pre-dominate benchmark in the United States.

If the writer is accurate, the price of WTI should start to move in tandem with Brent, and for the longest time now, Brent has been well above $100/bbl.

Implications for the Bakken: I don't remember the year, but I clearly remember it was during the summer, so it must have been the summer of 2009. I happened to be talking to a mineral owner. At the time I knew nothing about the Bakken oil glut and lack of pipeline capacity. Operators were being asked to limit their production, and oil companies were being paid less for their oil, simply because the pipeline companies had way too much. They were doing what they could to slow down production. One wonders how much producers in the Bakken have been holding back the past six months. Perhaps they have been pumping at 100 percent, but perhaps not.

If indeed, the storage problems at Cushing are attenuated due to Enbridge's actions today and the increased railroad capacity taking Bakken oil directly to the coast, bypassing Cushing, we may see an unexpected jump in Bakken production two or three months down the road. The Director's Cut generally comes out 45 days after the end of the most recent reporting month; therefore, we won't know until March, 2012, or so how today's events affected the Bakken.