DRUbit Or Dilbit -- DRUbit-By-Rail -- DBR -- Game-Changer -- October 17, 2021

Note: in a long note like this there will be content and typographical errors. If this is important to you, go to the source.  

A reader alerted me to the story. Thank you.

Elections have consequences: this would not be a story had Resident Biden not canceled the Keystone XL. But here we go again. Assuming Biden's regulators don't stop the merger, and assuming the merger goes through, there will be a "new pipeline" running from western Canada to the US gulf coast.

The "new pipeline" will be above ground and run on two rails.

DBR, not CBR.

From The Star Tribune via Yahoo!Finance:

• the "new pipeline": Canadian Pacific - Kansas City Southern (one of many links here)
• new venture: USD Partners -- processes heavy oil with diluent and then loads it on rail tank cars;
  
• the "pipeline" bisects the Twin Cities
• could add as many as 15 to 20 oil trains through Minnesota each month
• would begin as early as 3Q21
• destination: Port Arthur, TX
• I don't know where this stands with regard to approval by US regulators, but it seems it would be difficult to halt the deal when Resident Biden said his administration is looking for additional ways to move "energy" around the nation -- LOL -- in addition:
  
• while remaining the smallest of six U.S. Class 1 railroads by revenue, the combined company will be a much larger and more competitive network, operating approximately 20,000 miles of rail, employing close to 20,000 people and generating total revenues of approximately $8.7 billion based on 2020 actual revenues. 
• so we'll see
• CP is already the largest rail shipper of oil in the state
• volume varies considerably: anywhere from five to nineteen "hazardous" trains per month
• but get this:The new oil trains running from USD's terminal aren't likely to be tallied in those state counts. USD said the oil is not hazardous cargo as defined under U.S. and Canadian transportation regulations.
• folks can correct me but this is my understanding:
• Houston-based USD Partners will process / load the diluent-bitumen at their facilities in Hardisty, east-central Alberta, Canada unto the CP-KCS railroad
• the diluent - bitumen slurry is abbreviated to "dilbit" but DB Partners refers to this as DRUbit-by-rail (DBR) 
• the DRU facility in Hardisty is, apparently near completion, if not already completed
  

Folks will argue about this for quite some time, but one wonders whether DBR through the Twin Cities would even be an issue if the Keystone XL had not been canceled and had other pipelines not been delayed, deferred, or canceled (see Liberty Pipeline).

Calgary Financial Post On The Canadian Pacific - Kansas City Southern Deal -- March 23, 2021

This story is followed at this post.

From The Calgary [Alberta] Financial Post, "Canadian oil producers see a new route to Gulf Coast refineries coming from the CP Rail deal. Rail route looks promising after cancellation of Keystone pipeline." From the linked article:

Canadian Pacific Railway Ltd.’s blockbuster US$25-billion deal for Kansas City Southern offers new hope for expanded access to the Gulf Coast for Canadian oil producers that have struggled to reach heavy oil markets in Texas and Louisiana.

Canadian oil and gas companies have for years tried to expand their options to ship heavy oil from Alberta to the southern coast of the United States, but their efforts to reach the world’s largest concentration of heavy oil refineries have been challenged time and time again. Most recently, U.S. President Joe Biden cancelled permits for the Keystone XL pipeline.

CP Rail’s deal with KCS “looks promising, but we’ll have to see what they actually do,” said Tristan Goodman, president of the Explorers and Producers Association of Canada, which represents mid-sized oil and gas companies.

“They’re not terminating in a great area for us, quite frankly,” he said of CP Rail’s existing network, “so joining forces does have a benefit.”

My hunch: even if regulators don't approve this merger Canadian Pacific and KSC could certainly work together to move oil from Canada to the Gulf coast. I assume that is already occurring.  

More from the article:

Currently, crude by rail accounts for about five per cent of revenue at CP and about two per cent at KCS. The two companies believe the deal will boost these revenues.

CP spokesperson Jeremy Berry in an emailed statement said the company plans to use a crude-by-rail facility in Alberta that pulls the blending agents out of heavy crude oil to create a “pipeline-competitive way of delivering Alberta energy products to market by rail.”

He added: “We can do this as the combination will provide for a more direct and efficient route to refineries on the Gulf Coast.”

A combination of energy products, including crude oil and fracking sand, chemicals and plastics, make up roughly 20 per cent of CP Rail’s total freight revenue, Morningstar analyst Matthew Young said in a research note.

CBR On Steroids -- March 21, 2021

Updates

March 23, 2021: further reporting from the Calgary [Alberta] Financial Post.

March 22, 2021: 75% chance regulators won’t approve it.

Original Post

The headlines:

• Canada's Canadian Pacific railway to buy Kansas City Southern: $25 billion. Reuters.
• Largest deal of 2021. ZeroHedge.
• Will link Canada, US, and Mexico. Yes, Captain Obvious. The Wall Street Journal. But will also link Pennsylvania-to-Florida corridor. Maybe change the name to Can-Am-Zephyr.
  

My not ready-for-prime-time reply to the reader who alerted me to the story early this morning:

I think I blogged about KSC a couple of times on the blog.

KCS's "monopoly" into Mexico is huge. I was tempted to invest in KCS for that reason alone years ago but there was huge risk that new Mexican president would put huge restrictions on KCS. I was happy with BNSF and UNP.

Deal:

• The KCS deal: $30 billion.
• Buffett's BNSF deal: $34 billion.

Track:

• Canadian Pacific: 14,700 miles
• KCS: 3,400 miles
• Buffett's BNSF: 32,500
• UNP:  32,100

In this case, the relatively few KCS miles of track make the Canadian Pacific a "much bigger" company than just adding the two: the sum of the parts is much greater than the whole.

So:

• CN buys 3,400 miles of track for $30 billion.
• Buffett bought 32,500 miles of track for $34 billion.

I must be missing something or have the numbers wrong. Folks can fact-check me on the numbers.

BNSF and UNP overlap / compete west of the Mississippi. BNSF and UNP are huge out of Chicago, south to Texas, west to California.

Regulators probably would have frowned on Buffett buying KCS, and if the money numbers above are correct, I doubt Buffett would have wanted to spend that much money on another railroad.

But this deal is huge. Besides the Canadian to Mexico angle, Canadian Pacific now has access to Norfolk Southern which is the entire east coast of the US (Alabama to Pennsylvania) through the Meridian Speedway.

This is simply huge.

CBR: Suggestion -- overlay the new CN-KCS route with the might-have-been Keystone XL. This is not rocket-science. 

This was almost a no-brainer in retrospect. With or without oil / CBR, this is a huge deal for CN -- Canadian wheat direct to Mexico. Several story lines here; maybe later.

When was the cherry placed on top of this sundae? When the Keystone XL was killed.

It takes "years" to put together a $30-billion deal -- this certainly suggests CN was ready to pounce if the Keystone XL was killed. 

Memo to self: what company manufactures oil tankers and hoppers for railroads?

Disclaimer: this is not an investment site.  Do not make any investment, financial, job, career, travel, or relationship decisions based on what you read here or think you may have read here. 

Graphics:

How long is the Meridian Speedway? 320 miles, from Meridian, MS, to Shreveport, LA. How big is the Meridian Speedway? It has its own wiki entry. This was a joint venture between KCS and a subsidiary of Norfolk Southern Railway.

Link here, also.

• Streamlined route when traveling from the Northeast to Dallas and back
  • Fastest route from the Northeast to Dallas
  • Minimal potential for winter weather delays through a more southern route
  • Limited exposure to congestion and crosstown hassles present in other interchange cities
• Rail-controlled and asset-based Trailer on Flat Car and Container on Flat Car service
• End-to-end steel wheel interchange for our intermodal customers
• Fastest route from southern California to the southeast portion of the U.S.

Link here. I like this map better for various reasons. 

If "they" can make money on shipping wheat by rail (WBR), certainly "they" can make money by shipping "crude" by rail (CBR). And look how that CP line runs right where the DAPL runs. This is not rocket science, and it's very, very good news. 

Odds And Ends -- Early Morning Edition -- CBR, Why Saudi Is "Holding The Line" -- March 5, 2021

YCC: yield control curve, link here.

Dry hole:

• ExxonMobil hits third dry hold offshore Guyana;
• the company said every well, even dry holes, provides valuable data;
• the article did not say how much it costs to drill dry holes that provide valuable data;
• I've lost the bubble whether off-shore Guyana is still considered in its exploratory phase or development phase; I assume the former, although it may be a "mix"
  
• there are no dry holes in the Bakken (or the Permian, for that matter); 
• do not take that out of context
  

Rig counts: S&P Global Platts;

• rig count leaps 30 to 491
• twelve of those in the Permian
• the jump may have simply been mobilization of rigs "frozen" by the Texas February Freeze
• the freeze hit the Permian and Eagle Ford Shale in South Texas particularly hard. At peak, up to 4 million b/d of the US' total 11 million b/d of oil production was offline, although most of it was quickly restored within a few days
• nine basins
• liquid-rich: six -- Permian, Eagle Ford, Scoop-Stack, Denver-Julesburg, Williston, Marcellus wet
• dry gas: three -- Haynesville, Marcellus dry, Utica
• the Permian dwarfs the other eight

Keystone XL? Who needs the Keystone XL? USD Group nearing completion of Hardisty-to-Port Arthur (Canada to Texas) CBR network; link here at twitter;
at S&P Global Platts;

• Canadian crude exports are holding steady to US Gulf Coast;
• shipping crude by rail from Hardisty to the US Gulf Coast: $12 - $18 / bbl
• interim plan
• western Canadian oil pipeline volumes should increase by the end of 2021
• Enbridge Line 3 Replacement project;
• TC Energy's base Keystone system through optimization expansion

Why Saudi is "holding the line." Link here.

CBR Back In The News -- Warren Buffett Watching With Anticipation, No Doubt -- January 30, 2021

For investors in the rails, Biden is an absolute godsend. Whoo-hoo. 

Over the past week or so, I noted that three rails increased their dividends: two of the rails were Canadian and one was a US rail. I'm looking forward to an announcement from UNP in February regarding its next quarterly dividend. Six quarters without a dividend increase while others are increasing their dividends must be putting some pressure on UNP. We'll see.

From a reader, this link from S&P Global Platts: Canadian rails see CBR increasing on pipeline cancellations, uncertainty.

Takeaways:

• Biden XL cancellation increases reliance on CBR
• Canadian heavy crude proving to have resilient USGC demand
• CP Railway finishing construction to ship more from Hardisty

Wow, I haven't used the CBR or the CBR_Canada tags in a long, long time. I can hardly wait to use the CBR_Minnesota tag again. 

The great news: BNSF has had several years to enhance CBR infrastructure. My hunch: huge job opportunity in western North Dakota as moth-balled terminals are brought back on line. 

This will help with CO2 emissions. LOL.

Clearing Out The In-Box -- Huge Day -- October 31, 2019

By the way, wasn't there a lawsuit between EPD and ETP? Link here. 

Twitter one-liners:

• coals to Newcastle: the US has been a net exporter of crude oil to the UAE every month this year
• Rex Tillerson did not deny Exxon's role in creating global warming
• Turkey's oil imports reached their highest level in at least eight years at 703,000 bopd in August, 2019
• the US exported 2.727 million bbls of crude oil in August, 2019
• US crud oil imports from Saudi Arabia were 417,000 bopd in August, 2019, slightly higher vs multi-year low July imports of 395,000 bopd
• Weatherford reports $821 million 3Q19 loss; most of the loss related to reorganization costs
• US oil demand was at 21.062 million bopd in August, 2019, down 296,000 bopd or 1.4% y/y
• Texas crude oil production reached an all-time high in August, 2019: 5/121 million bopd
• US, September, 2019, crude oil production around 12.43 million bopd -- HFI Research, consider the source
• exit US oil production slightly lower not to about 12.8 million bopd; range is 12.8 to 12.85, down from 12.9; HFI Research, consider the source
• India increases its Russian thermal coal imports by 72 percent so far this year -- yes, 72 percent, no typo
• Encana to come US firm with new name; changes could take effect early next year; link here; new name: Ovintiv;
• differentials widened from ~ $13/bbl toward $30/bbl -- Canadian western shale oil -- stranded oil -- Keystone pipeline lead; no typo; diffs widened from ~$13/bbl toward $30/bbl

MPC: huge earnings report, announcements. Link here. To spin-off Speedway. Will break itself up into three separate companies: retail (Speedway); refining; and, pipelines. MPC estimates the retail unit has a potential enterprise value of $15 billion to $18 billion (Speedway);

Refining costs to increase: following Canadian Keystone pipeline spill in northeastern North Dakota, earlier this week; last time this happened; pipeline shut down for quite some time

Pipeline expansion: Seaway eyes expansion; could add 200,000 bopd; link here -- 

• Cushing, OK, to Texas Gulf Coast
• 50/50: Enterprise Products Partners LP, Enbridge

Time to optimize: link here.

Keystone pipeline leak: "ungood" for TC Energy; Bloomberg link here.

Disclaimer: this is not an investment site.  Do not make any investment, financial, career, travel, job, or relationship decisions based on what you read here or think you may have read here.

Canadian pipeline incidents (leaks): annual review, O&GJ. 2018:

• total pipeline system grew 75,000 miles
• 19 leaks for the CY18
• about average; pales in comparison to ~ 35 incidents in 2013
• four liquids incidents released a total of .... drum roll ... 175.5 bbls of oil; 94% recovered
• one release considered significant by totaling more 50 bbl
• compare with a single CBR derailment
• we won't go there
• Canadian transmission pipelines delivered more than 1.6 billion bbls crude oil in 2018
• 175.5 / 1.6 billion = 0.0000011%

Canadian CBR: Suncor, MEG, Cenovus eye increased CBR; announced prior to most recent Keystone spill; 

Gasoline pump prices: fall across US y/y. Link here.

• "significantly lower" -- their words, not mine
• average regular-grad gasoline pump prices fell 18 cents to hit $2.61 / gallon
• US gasoline consumption grew by approximately 520,000 b/d to 9.78 billion b/d for the weed ended October 25 from prior's week's 9.59 million b/d

Natural gas weekly storage report: link here.

Working gas in storage was 3,695 Bcf as of Friday, October 25, 2019, according to EIA estimates. This represents a net increase of 89 Bcf from the previous week. Stocks were 559 Bcf higher than last year at this time and 52 Bcf above the five-year average of 3,643 Bcf. At 3,695 Bcf, total working gas is within the five-year historical range 

Global warming; blamed for record low, early winter temperatures; record snow

• Utah sees record cold of  -43.6 ºF; may have set record for continental US; shoot, it may have set record for North America
• Chicago: 96-year-old snowfall record smashed as Halloween storm sweeps across the US; link here;
• record low temperatures; up to 50 degrees below normal, threaten to wreck rest of harvest season;
• can you say, "grand solar minimum" -- this has been predicted for quite some time;

For the record -- Farmer's Almanac, from this link, screenshot, October 31, 2019:

Peak Oil? What Peak Oil -- March 2, 2019

We talked about this just a few weeks ago: for investors, how to value a company based on reserves?

Rigzone weighs in.

The article doesn't answer that question. In fact, the article hardly addresses that question.

Instead, the article is about global reserves in general. Data points:

• current estimated global oil reserves: 1.7 trillion bbls
• global demand, about 100 million bbls/day
• doing the math: 45 years at current demand and no further addition to reserves
• since 1980, we've extracted about 950 billion bbls -- let's call it a trillion bbls -- and during that period proven oil reserves have soared by over one trillion bbls
• why peak-oil production is wrong: the US has had a reported oil supply lifetime ("reserves-to-production" of just 8 - 14 years reported every year since the end of WWII. This suggests we should have run out of oil many decades ago. Yes ,over 50 billion bbls and 12 million bbls/day, proven reserves and total crude oil production are the highest in US history
• why peak-oil production is wrong: there is little economic incentive to look for resources that will not be needed for many decades
• global shale and deepwater opportunities are overwhelmingly under-explored but will become more attractive as demand continues to mount
• most people do not know that 60 - 70 percetn of a reservoir's OOIP remains stranded after primary and second operations because it is so difficult to extract
• tertiary recovery -- CO2-EOR could be the next oil revolution in the US after shale

By the way, something to think about.

For decades oil companies have said CO2 is not an issue. Now they are changing their story. Sure, they are being forced into political correctness. But didn't this work out just great? All of a sudden CO2 will be needed for tertiary production.

***********************************

Canada 

Relaxing production cuts. Will bring more heavy oil to market just when it's most needed.

*********************************

China

Says massive shale oil reserves found in northern China. Doesn't amount to a hill of beans, yet, and won't for decades. But, then again, it will add to global reserves. See first article above.

********************************

Venezuela

Colluding with Russia. Venezuela will move its European headquarters to Moscow.

Back in the USSR, The Beatles

Why I Love To Blog -- Reason #354 -- February 20, 2019 -- Alberta To Launch Huge CBR Scheme

A recurring theme on the blog is that oil companies will find a way to get their product to market.

Two days ago I wrote:

The problem will be the "right" kind of oil. The oil companies had that figured out years ago when they went forward with the Keystone XL. Unfortunately, now the perfect storm:

• Canada's western Canadian oil sands (heavy oil) remains landlocked
• the Keystone XL is dead;
• TransMountain is on life support; and,
• Enbridge Line 3, is intensive care but likely to survive; however, it won't be nearly enough to make up the shortfall
• fortunately, CBR is scalable
• it will be interesting to see if BNSF will be allowed to "assist" in Canadian CBR (I doubt it; I'm sure there are rules and regulations; if not, politics will impede)
• Venezuela, heavy oil -- we all know that story
• Mexico, heavy oil -- some think Pemex is doomed and based on policies taken by their newly-elected president, that may be correct
• Saudi Arabia, heavy-enough oil -- cutting back because it can't make it on $65-oil; needs $80-oil as a minimum; probably $100-oil when you get right down to it

Me? Not a bit worried. The refiners will take a hit on margins and the price of gasoline might go up, but "they" will find ways of getting heavy oil if they need it.

Now, today from Bloomberg via Rigzone: Alberta proposes huge CBR project; eyes a $1.7 billion profit. Data points:

• the Alberta provincial government will lease 4,400 rail cars; no locomotives; over three years
• will add 120,000 bopd 
• province hopes to shrink Canadian crude discount by $4/bbl over two years
• to move heavy oil (railbit) from Alberta to refiners along the US Gulf Coast
• the province will invest C$3.7 billion to lease tanks cars and services
• will generate C$5.9 billion in sales
• will net: C$2.2 billion ($1.7 billion)
• service providers: Canadian Pacific Railway Ltd; Canadian National Railway Co.

Folks in Minnesota, Nebraska will be screaming for more pipeline once they see all those oil trains creeping through their towns and villages at 5 mph.

Tight Labor Market; At Record Levels -- WSJ -- February 12, 2019

Link here.

7.34 million unfilled jobs across the US.

Job openings push further into record territory at end of 2018. The number of available jobs exceeds unemployed Americans by one million at the end of 2018.

The article has garnered only two comments. That speaks volumes.

From the linked article:

There were a seasonally adjusted 7.34 million unfilled jobs on the last business day of December.

That was up from a revised 7.17 million at the end November, and surpassed August’s then-record of 7.29 million openings.

The increased openings late last year was followed by robust hiring in January, separate Labor Department data showed earlier this month.

**********************************

Also At Record Levels: Canadian CBR

Article at Minneapolis Star-Tribune here. From the article:

Oil imports by rail from Canada have hit a historic high, meaning more oil trains are rolling across Minnesota and raising the alert level of local emergency managers.

Rail shipments from Canada to the United States more than doubled during 2018 as Canadian oil production outstripped the capability of pipelines to ship the stuff, including the six Enbridge-owned lines crossing northern Minnesota.

Oil train traffic through Minnesota from North Dakota was also up noticeably in 2018, though nowhere near peak levels of 2014. The North Dakota rail uptick is largely rooted in oil price shifts.

Canada’s two big railroads, the Canadian National (CN) and the Canadian Pacific (CP), have major routes in the state, the former running through the Twin Ports, the latter through the Twin Cities. The BNSF Railway also moves some Canadian crude in Minnesota.

BNSF said it’s seen a “moderate” increase in Canadian oil shipments. Canadian Pacific declined to release any oil train details. Canadian National said its total oil shipments jumped 77 percent from 2018’s third quarter to the fourth quarter, though it didn’t disclose more specific data.

Over the last four months of 2018, 299 oil trains on the Canadian National’s tracks crossed from Ontario at Ranier, Minn., up from 121 during the same time a year ago.

Oil trains typically have 100 tank cars, each carrying around 30,000 gallons.

The last major CBR accident, Casselton, ND, resulted in a fireball and no injuries, occurred over five years ago. 

Prior to that, a tragic CBR incident occurred in Canada, 

High-profile accidents thrust oil trains into the spotlight a few years ago, the biggest being a fiery 2013 disaster in Lac-Mégantic, Quebec, that killed 47 people. A year later, a BNSF oil train crashed and burned near Casselton, N.D., about 20 miles west of Fargo. Over 1,400 people were evacuated, but there were no injuries.

 I could be wrong but I think there is a solution to all that concern about ever-increasing CBR.

Archived here.

Seven Wells Coming Off Confidential List Today -- February 7, 2019

NDIC daily activity report: for yesterday -- pending -- link here.

Jobs: first time unemployment claims -- 234,000 -- link here:

• previous: 253,000 (surge due to government shutdown)
• forecast: 225,000
• actual: 234,000 (Steve Liesman will be happy)

************************************

Back to the Bakken 

Wells coming off the confidential list today -- Thursday, February 7, 2019: 31 wells for the month; 133 wells for the quarter

• 34615, 937, Oasis, Florence 5303 11-2 2B, Painted Woods, t8/18; cum 93K 12/18;
• 33726, 1,995, CLR, Norway 4-5H1, Fancy Buttes, 11/18; cum 57K 12/18;
• 33462, 1,622, CLR, Omlid 5-19H2, Elidah, t12/18; cum 14K after 12 days;
• 33374, drl, EOG, Liberty 45-1311H, Parshall, t8/18; cum 114K 12/18;
• 33373, drl, EOG, Liberty 44-1311H, Parshall, t8/18; cum 132K 12/18;
• 32924, SI/NC, BR, Renegade 34-15TFH, Sand Creek, no production data,
• 30317, 1,685, Hess, EN-Weyrauch C-154-93-2932H-12, Robinson Lake, t12/18; cum 5K after 4 days;

Active rigs:

$53.26	2/7/2019	02/07/2018	02/07/2017	02/07/2016	02/07/2015
Active Rigs	62	58	40	42	136

RBN Energy: how will the ban on Venezuelan crude affect US refiners? Yesterday I said the ban on Venezuela crude oil will have NO effect on the US (in the big scheme of things -- the refiners will have some challenges, and the price of gasoline might go up slightly -- but overall not a big deal). It will be interesting to see what RBN Energy says.

The U.S. Treasury Department last week announced new sanctions on Petróleos de Venezuela, S.A. (PDVSA), the national oil company of Venezuela, that effectively halts imports of Venezuelan crude oil into the U.S. Given that the Venezuelan crude imported to the U.S. is of the heavy sour variety, which is not produced in large amounts in the U.S. (except for California), certain refineries along the Gulf Coast are left scrambling to find alternative sources of feedstock for their facilities. Today, we evaluate historical crude oil imports from Venezuela, the refineries that are most heavily impacted, and the potential effects of the sanctions on U.S. refiners.

Refineries in Petroleum Administration for Defense District (PADD) 3, which includes the Gulf Coast, processed an average of 9 MMb/d of crude oil in 2018, and of that total, approximately 1.6 MMb/d was of the heavy sour variety. Of the heavy sour portion, ~420 Mb/d came from Venezuela. Some may wonder how a country that supplies less than 5% of PADD 3’s crude slate could cause industry headaches; today, we’ll explain why.

Wow, the RBN Energy analysis comes to the very same conclusion to which I came:

What does all this mean? Substituting crude oils on short notice, especially heavy grades that are generally less fungible (from a quality standpoint) and likely already under contract to other buyers, is a tricky process. It requires linear program (LP) modeling in conjunction with commercial intelligence to determine the “next best” grade(s) to purchase, which of course depends on each refinery’s specific configuration. Assuming Gulf Coast refiners can’t increase imports of Canadian and Mexican crude oils by meaningful amounts (due to Canadian delivery constraints and Mexican production declines), coking refiners there will be scrambling to get their hands on alternative heavy crude oil streams. Grades closer to home in South America are a potential — albeit limited — source, so we’ll likely see some increases in imports from the Middle East and Russia. With this supply crunch, the light-heavy differential along the Texas and Louisiana coast should remain narrow (in other words, heavy crude oil stays relatively expensive) and also have a domino effect on medium sour grades (e.g. Mars), as we’ve already seen. Refiners will adapt, but processing profits may take a hit in the near term — especially for refineries highly dependent on Venezuelan grades. Things may change as we get closer to January 2020, when IMO 2020 takes effect. We’ll continue to track this and provide an update when appropriate.

Be cognizant of railbit and dilbit.

Nice graphic from RBN Energy at this post. 

It's Official: Justin Trudeau Owns The Trans Mountain Pipeline -- September 4, 2018

Link here.

The transaction was completed through Trans Mountain Corporation, a subsidiary of the Canada Development Investment Corporation. The total purchase consideration was $4.5 billion in cash.

Meanwhile, CBR, the technology faux environmentalists love -- carbon-spewing diesel locomotives -- LOL: Canadian CBR exports set record in June, surpassed 200,000 bopd. That nearly doubles last year.

Think about that. 200,000 bopd. Trivial. The Bakken produces that much oil in four hours every day. And that Canadian CBR? We're not talking four counties in North Dakota: we're talking practically the entire Canadian oil sector, much of which has been shut down due to pipelines being delayed or shut down completely.

My hunch: if there is no movement with regard to the Trans Mountain Pipeline and if the tea leaves suggest that the earliest -- assuming all goes well -- this pipeline expansion could proceed is in 2021, there will be a huge surge in Canadian CBR. And those trains will enter somewhere along the northern tier (Montana, North Dakota, Minnesota) and will chug through Minneapolis and onto Chicago. 

**************************

Another Fool

It's a fool's errand to predict the price of oil.

From oilprice:

If oil goes higher this winter, all things being equal, it will be on the "back" of "heavy oil."

See light / heavy oil at this wiki link.

******************************

Making America Great Again

By the way, from the linked oilprice above:

“The fundamental picture is the strongest I've seen in quite some time," Kilduff said. "Everybody has got a job, everybody is driving to that job, and they're going to continue to drive to that job no matter what gasoline costs."

Best indication that there are a gazillion jobs out there: Ford F-Series, vans combine for best sales since 2005, F-Series sales increase for 16th consecutive month.

Whistling Past The Graveyard -- SeekingAlpha -- Update On The Trudeau Pipeline Expansion Project

See this post for background to this story.

From SeekingAlpha, "be happy, don't worry."

• Trans Mountain expansion faced a big setback today when the Federal Court of Appeal quashed the government's approval to build the expansion;
• but valuation matters and Canadian heavy oil producers have already discounted the wider-than-normal spreads into the current price;
• crude by rail (CBR) remains the key catalyst to narrowing the discount near term, and this setback for Trans Mountain can actually push producers to ink multiyear crude by rail deals;
• With TMX now uncertain, Canadian oilsand capex will keep decreasing, which would push lower Canadian oil production, resulting in less global oil supplies. This could tighten global oil balances further;
• Because of the discounted valuations, we're bullish on Canadian heavy oil producers as we don't believe this is a material setback on fundamentals. Rather, it's only a setback on sentiment

The writer of that story is betting on the wrong horse. The winner in this race: the Canadian railroads. 

Canadian CBR Surged In June, 2018

We've talked about CBR-Canada a number of times recently; past blogs on CBR Canada:

• the rollicking return of CBR in western Canada -- RBN Energy -- August 6, 2018
• the spread between WCS and WTI -- RBN Energy -- March 21, 2018

Now, today, from SeekingAlpha;

• Canadian crude oil exports by rail surged 87% in June from a year ago to more than 204.5K bbl/day, according to the National Energy Board; June was the last full month for which the NEB has relevant data
• constraints on Canadian takeaway capacity has suppressed the price for the Canadian crude oil benchmark by as much as $30/bbl relative to the U.S. WTI benchmark
• "With western Canadian pipelines full, greater volumes crude by rail volumes will continue to grow into the fall," [a spokesman] says, expecting movement to average between 200K-300K bbl/day for the full year
• TransCanada is trying to expand that network to southern U.S. export terminals through the Keystone XL pipeline, although environmental challenges have delayed the project, and Kinder Morgan has tried to triple the capacity of its Trans Mountain network to British Columbia ports amid intense regional opposition

There It Is: WTI With A "64-Handle" -- February 26, 2018 -- 11:33 A.M. Central Time.

Updates

Later, 1:07 p.m. Central Time: the Dow is now up 364 points. 

Later, 12:12 p.m. Central Time: holy mackerel, Batman, the Dow is now up 340 points. See this post for some misguided analysis.

Later, 12:05 p.m. Central Time: literally, less than five minutes after I posted the seven reasons why crude oil was going to go higher (in price), Mike Filloon says the same thing -- "oil prices are headed higher as we go into driving season."  Folks should remember that Bakken producers have said -- pretty much across the board -- that they are cash neutral at $45-WTI.

Oil prices have continued to head higher since June of last year when WTI dipped below $43/bbl. It is impossible to be certain as to the trajectory of oil, but there are a number of factors that could push oil higher. The recent pullback seems to be an opportunity going into what could be a very good driving season. We are bullish oil prices into the 2018 driving season. WTI could move as high as $75/bbl. 

World GDP growth is almost at 4%, the best since 2011. Expansion of trade has been seen across a number of developed countries. For the first time in quite a while, confidence is driving investment. The Philly Fed manufacturing capital expenditure outlook is near an all time high. Business investment is up 6.3% yoy in Q4, and we think this will accelerate in 2018.

The financial markets are in the best shape since the crisis, and the removal of overly restrictive regulations are positive. Labor markets continue to tighten across much of the developed world. We think inflationary pressures will be held in check, and rates will not increase at current estimates.

We think pricing pressures are a 2019 event, followed by wage increases. Commodities are cheap in comparison to equities, and this should continue as long as policy remains loose. Financial markets have decent liquidity, and this is a positive for oil.

Disclaimer: this is not an investment site. Do not make any investment, financial, job, travel, or relationship-related decisions based on what you read here or what you think you may have read here.

Original Post

 

Lots of reasons for $64-oil, of course, but headline news suggests it is due to:

• Libya; and, 
• Venezuela

Nope and nope. It's due to speculators. LOL. Other reasons:

• cheap dollar
• inventories at Cushing plummeting
• Saudi says it will keep cuts in place despite better prices
• experts say we are now supply/demand balanced
• US driving season is almost here
• US economy firing on all cylinders
• Uber, Lyft pulling folks from public transportation 
• 10-year Treasury yield lowest since February 14, 2018 (around 2.8% and even if the yield hits 3%, economists and other experts discount the effect a 3%+ yield on ten-year T-bills will have on the economy)

Having said that, the US has placed new sanctions on Venezuela and the Venezuelan president has said, in the past, he would ban his country's crude oil exports to the US if more sanctions were imposed.

My hunch: Venezuela will export oil to Mexico (rather than the US), and Mexico will export that oil to the US for refining into gasoline, which Mexico will then import back into their own country. Think about it this way: Boston imported natural gas from Russia (despite sanctions) when the Marcellus/Utica were located in Beantown's backyard.

By the way, US refiners need heavy oil; that's why the Keystone XL from Canada (home of heavy oil/oil sands) was so important. With the loss of heavy oil from Canada and Mexico and Venezuela, the US refiners are in deep doo-doo. LOL. Nope. But we're going to hear more stories of Canadian CBR. 

No, I am not making that up. See this post from December 31, 2016:

The original story was at this post.

Now, additional data is provided, from Platts. Data points:

• Mexico's record-low refiner production and growing consumer demand: pushed US gasoline exports there to a new high in October
• gasoline exports to Mexico climbed 1.86 million bbls to 12.08 million bbls in October
• the previous peak was 11.42 million bbls in December, 2010
• Mexico is by far the largest importer of US gasoline; take 46% of the 177 million bbls of finished gasoline exported by the US in October, 2016
• exports push the price of gasoline higher
• outright price of Gulf Coast pipeline-delivered conventional gasoline, $1.71, highest price since August 18, 2015
• prime reason for increased exports to Mexico: chronic underinvestment in downstream investments over the years
• Mexico's refined product production is at its lowest point since Pemex started tracking data in 1995
• this, despite domestic sales climbing to a record high
• Mexico is expanding its main import terminal, the port of Tuxpan on Mexico's east coast

This won't be the top energy story of 2016, and it may not even make the top ten list, but it's a huge story and it's going to get much bigger.  

What makes this incredibly important and timely is this: in July, just a few months from now, Mexico will elect a socialist who has said his top energy priority is to re-look at all energy "dealings" between the US and his country. Andres Manuel Lopez Obrador (who looks a bit like an older Jamie Dimon) wants to turn his country into a refining country, instead of simply producing oil.

Good luck. My hunch: Obrador is sending his energy minister to Venezuela to see how to do things the "left" way.

As I've said earlier: after the July, 2018, Mexican presidential elections, California will be begging to have the wall built.

By the way, the market is up almost 300 points. See this post for a bit of misguided analysis. 

The Market And Energy Page, Part 3, T+4 -- January 25, 2018

I"ll get back to the Bakken, energy, and market in a few minutes, but let's start with this screen shot:

Okay, back to the Bakken, energy, and markets.

Disclaimer: Again, remember: this is not an investment site. Do not make any investment, financial, job, travel, or relationship-related decisions based on anything you read here or think you may have read here or anything that you were told by someone who said they read something on this site.

Wow, today has been so busy, all I can do, is link the article and then perhaps come back to it later.

So here goes.

The new Baker Hughes: developing its own identity. From The Houston Chronicle:

Baker Hughes said Wednesday that it narrowed its fourth quarter loss to $29 million from $104 million in the third quarter -- its first three months as a merged company.

Baker Hughes revenues, however, fell shy of the $5.9 billion generated by Halliburton as the Houston rivals compete to be world's second largest energy services company after Schulmberger, which has one of its four principal offices in Houston.

These guys are nuts: over at Bloomberg, the "dark side of American rise to oil superpower." I can only assume that Javier Blas is a pseudonym for Andrew Ross Sorkin. Even Andrew Ross Sorkin (who has probably named his first son Andrew Ross Sorkin II) wouldn't want to be associated with this article. One almost wonders if we will see it re-printed in The Economist.

How's the blog doing? Glad you asked:

Buckeled. From The Financial Post, Canadian oil prices buckle after railway refuses to be "swing shipper." Premier (don't you just love the word, "premier" -- slightly higher in the pecking order than "president" -- wasn't Mr Krushchev the "premier of the USSR? -- but I digress -- does anyone under the age of 25 know his first name -- no, it was not Putin) Trudeau is in deep trouble. His lackadaisical attitude toward his country's energy sector (about the only think the country has going for it, except recently opened borders) has resulted in CAVE dwellers stopping economic progress:

With new pipelines at least three years away, transportation capacity is so tight in Canada’s oil industry that every twitch in the system appears to be blowing out the discount. 

World oil prices are recovering, but Western Canadian oil prices are falling back to depressed conditions, the result of transportation capacity so tight every twitch in the system appears to be blowing out the discount.

Western Canadian Select (WSC), the Canadian benchmark, was changing hands for $33.57 a barrel Tuesday, after losing about $8 in two days, while West Texas Intermediate (WTI) was trading for US$64.75, up US$1.35 over the same period.

The latest scare to push down Canadian oil prices came from Canadian Pacific Railway Ltd. late last week, which said it has no interest in carrying big quantities of Western Canadian oil while producers wait for pipelines to get built.

“We understand crude is only going to be here for a limited period of time,” CP Rail CEO Keith Creel said to analysts in a conference call Thursday to discuss fourth quarter results. “We are looking for strategic partners with long-term objectives that allows us to have a more stable book of business.”

The railway expects its crude volumes to increase this year, to 60,000 carloads from 48,000 in 2017, but Creel said space would go to those who “appreciate that capacity” and CP will not allow itself to be “commoditized.”

We've talked about this so often I'm not going to say anything else. For now. Except to say this: very cheap heavy oil from Canada is going to replace heavy oil from Venezuela for US refineries optimized for heavy oil.

Buckeled. Tesla ... from CNBC/SeekingAlpha -- let's just put a bunch of phrases together and see if you can put together a coherent story. It shouldn't be too difficult:

• Model 3
• delays
• worsen
• shares fall 2%
• when does SEC get involved?
• Nevada gigafactory problems worse than "owner" previously owned up to
• factory resorting to having some batteries made by hand
• comments suggest that this is a fake CNBC news story 
• here's the CNBC link
• employees also said that quality control workers were not experienced, and two said that some batteries are leaving the factory with a potentially serious defect, a claim that Tesla vigorously denies.
• other comments, probably not accurate
• looking at bringing in donkeys from Mexico to help move raw components to where they are needed (probably not accurate; easier to bring in day laborers)
• borrowing scores of workers from suppliers to assist with manual assembly (okay, that's probably accurate)
• the comments are the best part of this story, or should we say, debacle
• gigafactory..gigglefactory...bespoke factory
• prospective owners can order hand-made batteries lined with custom redwood and leather packagine

The year of the fracker. In China, it's the year of the dog. From The Houston Chronicle:

Oil companies are on track to produce a record 10 million barrels of American crude a day, a milestone that could be reached as soon as February largely due to another record that is expected to fall in coming months.

By the end of the year, fracking intensity is projected to exceed levels reached in 2014 - the height of the so-called shale revolution - as hydraulic fracturing operations use more sand, more water and more pumping horsepower than ever before to free oil and gas from shale rock.

The result: U.S. crude production should reach an all-time high with just half the number of drilling rigs used at the peak of the last energy boom.

Welcome to the year of the fracker. The controversial technology that transformed the U.S. energy industry and reshaped global oil markets has advanced to a new level, becoming more science than art as fracking operations run round the clock, target ever smaller sections of wells with greater precision and greater force, and squeeze more oil out of every well.

"It never stops," said David Adams, senior vice president for completions and production for Halliburton of Houston. "We're pushing the limits."

To infinity and beyond.

Update On ONEOK's Plan To Boost Bakken Takeaway Capacity -- RBN Energy -- January 24, 2017

Measles outbreak in Texas. Shocking. Surprising? Not.

ObamaCare: healthcare premiums rise well ahead of healthcare costs for employer-provided health insurance. Huge story over at WSJ. How often do folks buy $500 washing machines? How often are folks paying premiums for ObamaCare?

Report finds boost in spending as use of most health-care services declined.Spending on health care accelerated in 2016 for Americans who get insurance through work, even as use of most health-care services declined or remained flat. The reason, according to a new report: price increases.

Rising prices for prescription drugs, surgery, emergency-room visits and other services drove a 4.6% increase in total spending per person, versus 4.1% in 2015 and less than 3% in the two previous years, according to the research nonprofit Health Care Cost Institute, which analyzed data for nearly 40 million people up to age 65 with employer-sponsored insurance.

The institute found the same trend when it analyzed spending over the five years from 2012 to 2016. Prices and spending rose, while use of health care largely declined.

Canadian CBR: we just talked about this the other day. Now Reuters is reporting that Canadian National Rail cannot meet demand for Canadian CBR.

Disclaimer: this is not an investment site. Do not make any investment, financial, travel, job, or relationship-related decisions based on anything you read here or think you ma have read here.

At least this part of GE is working: BHGE adjusted earnings beat forecasts on strong North American demand.

KMI: Motley Fool has thoughts. Very, very positive.

Closing: Toys "R" US closing 180 stores in the US.

They must be reading the blog: we wrote about this the other day, "more reasons why the stock market is surging." This will only add to "synchronized global growth." From The WSJ:
foreign firms brace for potential cost increases after U.S. tax overhaul finance. Executives worry certain provisions of the new tax law could offset some of the gains from the lower U.S. tax rate.

Foreign companies are calculating whether the cost increases they will bear under the new U.S. tax law will outweigh the benefits of a lower corporate rate.

New measures, such as taxing large companies on payments made to international affiliates under the Base Erosion and Anti-Abuse Tax—or BEAT—are raising alarm among international companies operating in the U.S. Meanwhile, tighter rules on the deductibility of interest and one-time charges linked to a reduction in the value of deferred tax assets are also sparking concern.

Foreign companies worry these moves will put them at a competitive disadvantage.
Still, a centerpiece provision of the new tax law ushers in a steep reduction in the U.S. corporate tax rate to 21% from 35%, which makes doing business in the U.S. more attractive.

GS/CEO: incredibly bullish on the market. But worries that once interest rates "normalize," things will change (get worse). "Easy money" driving the market. Haven't we had easy money for sixteen years? Certainly we've had easy money for nine years. The "easy money" story didn't change. What changed? Trump. GS/CEO says he likes Trump's policies. On CNBC this morning.

*************************************

Back to the Bakken

Active rigs:

$64.72↑↑	1/24/2018	01/24/2017	01/24/2016	01/24/2015	01/24/2014
Active Rigs	57	38	47	157	186

RBN Energy: ONEOK's plan to boost Bakken and Niobara/DJ Basin NGL takeaway capacity.

There has been growing concern regarding NGL pipeline takeaway capacity out of the Williston Basin and the Niobrara — particularly the DJ Basin — over the past year, with one of the major pipes through those regions now running full. Finally, ONEOK has announced plans for the Elk Creek Pipeline, which will have an initial capacity of 240 Mb/d and be expandable to 400 Mb/d. The new pipe will transport mixed, unfractionated NGLs from eastern Montana to the Conway/Bushton fractionation hub in central Kansas, and provide long-term relief for a lot of Bakken, Powder River and Denver-Julesburg (DJ) Basin producers. But with an end-of-2019 in-service date, will the new capacity come soon enough to avert NGL takeaway constraints? Today, we discuss the Elk Creek project, the flows on existing NGL pipes to Conway/Bushton, and the growing significance of ethane as pipelines fill.

The Energy And Market Page, T+363 -- Late Afternoon, The Market Turns Positive; Wow, Look What The US Tax Code Did For Canadian Pacific

Dow: after being minimally negative all day -- down about 50 points -- the Dow has now (2:22 p.m. CT) turned positive. Interesting.

*******************************

For Canadian Railroad, Better To Be Lucky Than Good

Canadian CBR: only a few days ago, January 8, 2018, to be exact, we posted that Canadian CBR is alive and well. Did 4Q17 Canadian Pacific earnings bear that out? You be the judge. From Motley Fool, Canadian Pacific Railway nets a big one-time gain in the fourth quarter.

Earnings for the fourth quarter of 2017 were monstrous, jumping 159% compared to this time last year. For anyone that follows the railroad business at all, that should sound a little suspicious. Sure, railroad companies can be excellent wealth building machines, but doubling earnings in a year is extremely rare.

So let's dig into Canadian Pacific's bottom line this past quarter to see what was up and what management expects for the rest of 2018.

Whenever a number jumps out like Canadian Pacific's net income for the quarter, you have to see what is behind it. According to management, net income benefited from an income tax recovery of 527 million Canadian dollars related to changes to the U.S. tax code. Canadian Pacific brought forward several hundred million in deferred tax assets, which was the reason for the sweeping gain. If we were to adjust earnings for this one-time benefit, earnings per share would have been CA$3.22.

The numbers:

• three quarters: revenue relatively flat
• operating income: relatively flat, but a nice bump in 4Q17
• but look at this, net income jumped from CA$150 million in 3Q17 compared to CA$984 million in 4Q17. Wow. A year earlier, 4Q16, net income was CA$384 million
• those numbers are reflect in the EPS; look at this:
• 4Q16: CA$2.61
• 3Q17: CA$3.50
• 4Q17: CA$6.77

Shares of CP are up significantly today on a down day for the market.

Memo to CP: send a "thank you" letter to President Trump. Send a "hey, what are you doing for Canada?" note to Mr Trudeau. 

So back to the numbers:

• 4Q16, net income: CA$384 million
• 4Q17, net income: CA$984 million
• Now, subtract out the CA$527 million related to income tax recovery:
• CA$984 - CA$527 = CA$457
• year-over-year, 457 - 384 = 73; 73/384 = 19% year-over-year

Yes, I would say that Canadian CBR is doing just fine.

The change in the price of CP shares today seem to reflect the 19% (real) improvement and not the one-time gain.

Canadian CBR -- Booming -- January 8, 2018

This is a big story on several levels. Re-posting:

CBR: some, including me, thought CBR was dead. Not so fast. Rail shipments of Canadian oil to US seen rising over 60 percent.

Canadian crude shipments to the United States by rail could rise more than 60 percent this year on demand by Gulf Coast refiners for the heavy crudes and the wide differential between Canadian grades and the U.S. benchmark.

The rail shipments could reach as much as 350,000 barrels per day (bpd) by year end and average some 400,000 bpd in 2019, estimated analysts at Tudor, Pickering, Holt & Co.

Last year, the shipments averaged 130,000 bpd, according to U.S. government data.

Canadian crudes have been replacing heavy oil from Venezuela and Mexico at the Gulf Coast, due to production declines in both countries.

But look at this. This is what the "no-pipeline-policy" in Canada is costing them:

Western Canada Select for February delivery traded Thursday at $25.05 per barrel below West Texas Intermediate, the widest since December 2014. Including transportation costs of between $11 and $14 a barrel to ship the crude by rail to the Gulf Coast, it is affordable to more refiners, said analysts and traders.

"Based on where the differentials are today, as an oil producer, you're incentivized to ship product by rail to the Gulf Coast," said Matt Murphy, a Tudor Pickering researcher.

The current differential is driven in part by increased supplies. Canadian crude oil production averaged 4.2 million barrels per day in 2017, according to National Energy Board estimates, up from 3.9 million bpd in 2016.

Production is expected to rise further this year as new projects like Suncor Energy's 190,000 bpd Fort Hills oil sands plant expand operations.

However, the increase in shipments will be capped by railroad operators' willingness to accept spot deliveries. Companies such as Canadian National Railway, have insisted on long-term crude-by-rail commitments before providing more rail capacity.

And more at the link.

Justin Trudeau's Goal To Keep-Fossil-Fuel-In-The-Ground Seems To Be Working -- December 16, 2017

Updates

December 17, 2017: a reader sent the original post to a friend in Canada. The Canadian reader disagreed with me, saying that Justin Trudeau was in favor of "the Canadian oil sands pipeline." The reader had not heard of George Butts, but this would be like Hillary, had she been elected president, making Tom Steyer her "principal advisor." And this is the problem with folks who are unaware of the persistence of socialists: they are "taken in" by smooth talkers but are unaware of the inner circle advising their elected leaders.

Justin Trudeau can be "for anything he wants to be," depending upon which audience he is addressing, but it doesn't take a rocket scientist to know where his allegiances lie, see clip below.

Unfortunately this is a long clip but skip ahead to 2:05 to hear George Butts in his own words:


Confused About Canada's Energy Policy?
It will be interesting to see how "Canada" and Justin Trudeau respond to $30-oil.

Original Post

 

A reader sent me a note regarding Canada's Justin Trudeau's principal advisor: George Butts. This is what would have happened to us had Hillary been elected. George Butts is Tom Steyer on steroids. George Butts doesn't have the money but he has the power. He is Trudeau's principal advisor on energy (and I assume most everything else). Prior to his current "job," he was president and CEO of the World Wildlife Fund Canada, a global conservation organization. In 2014, Maclean's magazine declared Butts to be the fourteenth most powerful Canadian.

I didn't think that article was of particular interest -- to me it was just another political debacle for the Canadians. So I did not post it and had no plans to post it. Then something else just popped up -- again, another article from a reader, which we will look at farther below, but first:

This is not a rhetorical question. I am truly curious. US refineries are optimized for heavy oil; that's what the Keystone XL pipeline was all about -- bringing heavy oil from western Canada to US refineries along the Gulf coast. Of course that has not panned out.

Meanwhile, imports from Saudi Arabia have dropped significantly and heavy oil imports from Venezuela, I assume, are also dropping. So, where is heavy oil for US refineries coming from? Certainly not from Canada. (Most recent data is from September; it will be quite some time to see data for November/December, 2018.)

The article that caught my attention and changed my mind about posting that bit about George Butts follows.

This article from oilprice.com was sent by another reader: Canadian oil prices plunge to $30/bbl. Data points:

• oil from Canada's oil sands is now selling at $27/bbl discount relative to WTI -- the sharpest difference in more than four years
• Western Canada Select (WCS): benchmark for oil from Alberta's oil sands, has plunged in December, falling to just $30 per barrel at the end of this past week
• reflects: 
• different quality from lighter forms of oil
• extra transportation costs to move oil hundreds of miles out of Alberta
• but a discount is usually something like $10/bbl; not more than $25
• a price deterioration of this magnitude has not been seen in years
• reasons for increased transportation costs: CBR is imploding; perfect storm
• TransCanada's Keystone pipeline capacity was slowed in November while the company made repairs
• led to a glut of WCS; WCS was diverted into storage as the pipeline underwent repairs
• second, railroad companies were unable to accommodate the oil industry on short notice; equipment constraints and crew constraints (one wonders if such constraints are worse in a liberal-leaning/regulation-heavy country like Canada vis-a-vis the US)
• Canadian oil companies have been tied up trying to ship delayed oil cargoes; have not been able to accept oil shipments

Much more at the linked article.

My hunch: Justin Trudeau is receiving a lot of angry phone calls from Alberta but George Butts is more than happy with how things are turning out. Butts leads the "keep-fossil-fuel-in-the-ground" parade.

************************************

Saudi Arabia Crude Oil

US Imports 

Link:

************************************

Venezuela Crude Oil

US Imports

Link:

Declining Saudi Crude Oil Imports Into The US Now Affecting Regional Spreads -- June 29, 2017

This is my simplistic view of the subject; I could be wrong; it wouldn't be the first time. 

US refineries along the Texas-Louisiana gulf coast are optimized for heavy oil.

Without heavy oil, US refineries are not going to need as much Bakken oil.

That's why the Keystone XL was so important for the Bakken -- not because it would have carried Bakken oil (although that was possible) but because US refineries needed a stable source of heavy oil. US refineries blend light oil (US glut) and foreign heavy oil (cartel) to make things work.

This was a difficult concept for President Barack Obama to understand.

So, there is a relative glut of light, sweet oil (Bakken oil, WTI) and a relative decline in heavy oil (Canadian oil sands -- operators fleeing; Venezuela -- imploding; and, Saudi Arabia -- in deep doo doo). One should be able to predict the way prices will move based on that data.

So, let's see.

From Platts, today:

Declining Saudi crude imports to USGC strengthen regional differentials.A drop in the volume of Saudi Arabian sour crude imports to the US Gulf Coast has served to boost medium and heavy sour crude differentials.

Amid an increasingly tight global sour crude market driven by OPEC cuts, Saudi Arabian crude imports to the Gulf Coast in June decreased month on month by 9.975 million barrels to a level of only 11.519 million barrels, according to US customs data.

In May, Saudi crude imports totaled 21.494 million barrels and in April these imports reached 19.801 million barrels.

As imports from Saudi Arabia have tightened, the differential for domestic medium sour grade Mars has increased 85 cents/b since reaching a three-month low of WTI cash minus $1.80/b on June 20. Mars was assessed at minus 95 cents/b on Thursday after five trades were heard during the day at that level. (Mars off-shore platform.)

And this one-off:

The tightened supply in the Gulf Coast proved the perfect market for five cargoes of Mexican heavy sour Maya crude, diverted to the region from the US West Coast. Mexican state oil company Pemex diverted the cargoes to the USGC due to pipeline damage following both a regional flood and later a fire at the Salina Cruz refinery, according to market sources.

By the way, speaking of the Keystone XL killed by President Barack Obama, note this CBR story posted earlier today. Apparently, some folks in Washington thought CBR was better for the environment than pipelines. LOL.