For mineral owners wondering why their recent royalty checks were so low, this was the note I sent to some interested readers:
If you want to see why our recent checks were so low, here are the oil prices for Bakken oil as reported by the State of North Dakota -- these numbers came out today:
- today: $33
- July: $31.75
- June: $32.35
- May: $7.92 -- no typographical error.
The Louisiana Offshore Oil Port (LOOP) announced on Wednesday that this month it has successfully loaded its second VLCC for export and the vessel is heading for a port in Asia, according to Reuters. Navios VLCC Nave Photon was chartered by Houston-based Shell.I'm not sure if the ship is bound for Singapore or China. Early on, its destination was said to be Singapore, according to "Marine Traffic," although press releases suggested its destination was mainland China. It seems it passed Singapore some time ago and its current position is near mainland China. I originally thought it was headed to mainland China like the first VLCC that departed LOOP earlier in the year.
Bakken crude differentials soar on widening Brent-WTI spread Houston (Platts)--30 May 2018 615 pm EDT/2215 GMT.
Bakken crude differentials for delivery in July rose sharply Wednesday to multi-month highs, flipping to a premium to the NYMEX WTI calendar-month average amid further widening Brent-WTI crude spreads, with Williston barrels rising to parity with Clearbrook for the first time.
Bakken had a very active spot market, with differentials heard going up continually throughout the day. [A reminder: CLR is not hedged.]Much, much more at the link.
"This is pretty wild," a market source said.
Sources cited the further widening Brent-WTI spread, which rose above $9/b during the day, as the primary driver of the rally, giving the incentive to ship Bakken barrels south to the US Gulf Coast. S&P Global Platts assessed the July-delivered crude spread at $9.52/b -- the highest in more than three years.
Close to the oil wells in North Dakota, Williston-origin barrels for rail transport were heard traded as high as NYMEX WTI CMA plus 25 cents/b, a steep rise of $2.20/b from Tuesday's assessment. This was the highest differential since November 11, when it was assessed at NYMEX front-month WTI CMA plus 35 cents/b.
Williston barrels for delivery on the Dakota Access Pipeline were heard traded as high as NYMEX WTI CMA plus 20 cents/b.
Bakken crude in the Clearbrook, Minnesota, hub that supplies the Midwest market, meanwhile, was talked valued at a rare parity with Williston barrels, equivalent to a rise of $1.45/b day on day. This was the first time Williston barrels rose to parity with Clearbrook since S&P Global Platts started assessing the former in April 2014.
US oil prices are falling well behind their international rivals, as booming shale production has created pipeline constraints, driving the biggest discount to North Sea Brent in three years.
On Thursday (today), US benchmark West Texas Intermediate‘s discount to Brent crude moved above $11 a barrel, a level not seen since 2015, in the latest sign inland US crude markets have become swamped by rampant production.
Brent was near $78 a barrel while WTI traded closer to $66, before recovering. Traders and analysts say WTI’s discount to Brent— known as the Brent-WTI spread in the industry — reflects pipeline constraints in two key areas that have intensified over the past three weeks. The discount was closer to $5 a barrel in early May.
The deep discount first appeared in the heart of the Permian Basin — the most prolific US shale field — around the city of Midland in west Texas. It has since moved to Cushing, Oklahoma, a tank storage hub that can also be a detour for Permian barrels flowing towards refineries and oil export docks on the coast of the Gulf of Mexico.
Traders have essentially maximised capacity on pipelines running out of Cushing to the Gulf Coast as US crude production has risen towards 10.5m barrels a day while demand for exports frequently tops more than 2m b/d.Bakken? Not mentioned. And folks know. Memo to self: write letter to Judge James Boasberg.
While I emphasized the differences in speculative money flows to the Nymex West Texas Intermediate, or WTI, and Brent crude oil contracts, I didn't give the role of logistics the prominence it deserved. So here goes.
To recap, the spread between WTI and Brent crude prices began widening in late July and has recently blown out to about $6 or $7 a barrel.
Hurricane Harvey's disruptive impact in late August helped push that spread beyond $5. But it had been opening ahead of that and hasn't shown signs of closing since.
Besides Brent's international benchmark, Nymex WTI is suddenly trading at wide discounts to other benchmarks within the U.S., too.
Those premiums of roughly $5 to $6 for Louisiana Light Sweet and WTI delivered in Houston are big flags that something is up with the way oil is flowing within the U.S.
The Nymex WTI contract is settled physically at the pipeline and storage hub in Cushing, Oklahoma, which is hundreds of miles inland from the refining and export facilities along the Gulf Coast. The other barrels, closer to the coast -- and, therefore, global markets -- are priced more in-line with Brent. Their premiums versus Nymex WTI jumped at the end of August as Hurricane Harvey's disruption kept barrels bottled up in Cushing.
But their continued strength and that other line on the chart above -- for barrels priced in North Dakota -- hint at other, more structural issues.
John Coleman, a senior analyst at Wood Mackenzie, points to the start-up of the Dakota Access pipeline in June. Dakota Access takes barrels from the Bakken down to Patoka, Illinois -- where they compete with barrels coming from Cushing. Better access to Midwestern refiners, as well as pipelines heading south from Patoka to ports on the Gulf Coast, helped close the Bakken discount to WTI and encouraged a bit more production in North Dakota.Much, much more at the link.
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.
The Bakken crude oil spot price discount to Brent averaged $8 per barrel (b) in August 2015. It narrowed to average only $2/b in November 2015, and by January 2016 averaged $1.69/b (Figure 1). The narrower the spread between domestic and imported international crude, the more likely costal refineries will choose to run imported crudes rather than domestic supplies shipped via rail.Second, from John Kemp's tweets earlier today:
US weekly crude oil imports were running at some of the highest rates in two years this past week.
Under Mr. Obama, friends are enemies, denial is wisdom, capitulation is victory. Orwell would have understood the president's upside-down thinking.No, Orwell would not have been able to understand Obama's thinking. A psychiatrist might be able to explain Obama's thinking, but not a novelist.
The humiliating denouement to America’s involvement in Yemen came over the weekend, when U.S. Special Forces were forced to evacuate a base from which they had operated against the local branch of al Qaeda. This is the same branch that claimed responsibility for the January attack on Charlie Hebdo and has long been considered to pose the most direct threat to Europe and the United States.
So who should Barack Obama be declaring war on in the Middle East other than the state of Israel?
There is an upside-down quality to this president’s world view. His administration is now on better terms with Iran—whose Houthi proxies, with the slogan “God is great, death to America, death to Israel, damn the Jews, power to Islam,” just deposed Yemen’s legitimate president—than it is with Israel.
He claims we are winning the war against Islamic State even as the group continues to extend its reach into Libya, Yemen and Nigeria.
He treats Republicans in the Senate as an enemy when it comes to the Iranian nuclear negotiations, while treating the Russian foreign ministry as a diplomatic partner. He favors the moral legitimacy of the United Nations Security Council to that of the U.S. Congress. He is facilitating Bashar Assad’s war on his own people by targeting ISIS so the Syrian dictator can train his fire on our ostensible allies in the Free Syrian Army.
He was prepared to embrace a Muslim Brother as president of Egypt but maintains an arm’s-length relationship with his popular pro-American successor.
He has no problem keeping company with Al Sharpton and tagging an American police department as comprehensively racist but is nothing if not adamant that the words “Islamic” and “terrorism” must on no account ever be conjoined.
The deeper that Russian forces advance into Ukraine, the more they violate cease-fires, the weaker the Kiev government becomes, the more insistent he is that his response to Russia is working.
To adapt George Orwell’s motto for Oceania: Under Mr. Obama, friends are enemies, denial is wisdom, capitulation is victory.Perhaps better said, America's enemies are Mr Obama's friends. Remember: everything one learns about life is learned by the time one graduates from kindergarten. He may have been born in Hawaii, but he was certainly not raised there.
TransCanada’s Cushing, Oklahoma, to Port Arthur-Nederland, Texas, and Gulf Coast Pipeline project is expected to operate at an average of 550,000 b/d in 2014, despite having a capacity of 700,000 b/d. The line is the southern tail of the original Keystone XL proposal.
Alex Pourbaix, the President for Energy and Oil Pipelines at TransCanada, said in the company’s third quarter conference call that because of the relative newness of the line, it won’t be able to operate at full capacity initially. Officials also said though that a “significant majority” of the barrels that are going to be moving down the line were under contractual commitments, rather than being planned spot barrels.
TransCanada officials also said that the first oil from the Cushing-Port Arthur-Nederland pipeline would reach the Gulf Coast before the end of this year, but they’ve been saying that all along.But then this shocker:
“So when TransCanada says they expect 2014 throughput to be about 550,000 b/d, there should be no surprises,” said a Gulf Coast refiner. “More surprising is that the Gulf Coast Pipeline project [another project in addition to the Keystone XL southern leg] is not fully subscribed.”This helps explain the WTI-Bakken spread.
The Brent premium to West Texas Intermediate (WTI) on Friday (October 18, 2013) was $9.14/Bbl – indicating a new disconnect between US crude prices and international levels. Unlike last time a big Brent premium to WTI opened up in 2010 the price of Light Louisiana Sweet at the Gulf Coast is still tracking with WTI rather than following Brent. This suggests that the US Gulf Coast is long crude at the moment and that imports of Brent priced crude are not required. Today we discuss the current Gulf Coast crude market.Note: "imports of Brent-priced crude are not required."
This sudden divergence in the Brent price runs counter to the thinking of many analysts. That is because it signals that US Gulf refineries currently have adequate crude supplies and do not need imported barrels – certainly of light crude but also of medium grades as well - i.e. any crudes with prices linked to Brent. If there were demand for these imported barrels then theoretically the price of LLS would be tracking closer to Brent because those imports would compete with LLS for the attention of Gulf Coast refiners.
With LLS at a near $6/Bbl discount to Brent the Gulf Coast is not attracting imports.Why is that such a shock? After all, US production has been increasing in leaps and bounds and we know that a lot of shale crude has been arriving at Gulf Coast refineries from North Dakota, the Permian Basin and the Eagle Ford. The reason for the surprise is that Gulf Coast refineries were (up until early October) running at over 90 percent of capacity and although more domestic crude is making its way to the region, most believed that refiners still need plenty of imported supplies to make up their feedstock requirements.
But this week, prices seem to be telling us that the Gulf Coast is awash with crude supplies. LLS crude is trading at a $3/Bbl premium to WTI – less than the cost of transport from Cushing to the Louisiana Gulf Coast (where LLS is delivered at St. James). The Houston price for WTI is tracking neck and neck with LLS. So Louisiana refiners are getting adequate supplies from local offshore production, barges from Corpus Christi or rail from North Dakota and have no need for Cushing barrels. In any case the current work to reverse the Ho-Ho pipeline means there is no pipeline link from Houston to St James. Even heavy crudes look to be over supplied at the Gulf Coast at the moment.
The price of two heavy sour grades – West Texas Sour and Southern Green Canyon - were discounted last week by more than $7/Bbl to WTI due to low demand for these crudes by Houston refineries. In short – Houston and Louisiana Gulf Coast refineries appear to have plenty of crude.
Bakken oil priced in Clearbrook was unchanged at a premium of $15.69 a barrel more than the Plains Marketing LP posted price for Williston Basin Sweet Crude at 4:12 p.m., according to data compiled by Bloomberg. It’s the highest level since Dec. 20.
The spread between the two prices had narrowed in recent months as producers loaded oil directly onto trains headed to refineries on the East, West and Gulf coasts, where waterborne crude is more expensive. About 71 percent of Bakken oil was transported by rail in March, compared to 20 percent by pipe, according to the North Dakota Pipeline Authority.
From a short-term perspective, the spread changed by $2.00/barrel over the week (with Bakken moving lower relative to WTI Cushing) which was a negative catalyst for producers in the region.
However, over the medium to long term, increased infrastructure has allowed for differentials to close and stabilize and has even spurred major Bakken operators such as Continental Resources (CLR) to change guidance on its realized differentials to be closer to WTI.
These developments are medium-term positive catalysts for other operators in the region, such as Whiting Petroleum (WLL), Kodiak Oil & Gas (KOG), and XTO Energy (part of Exxon Mobil, XOM) and indeed over the medium-term the spread had closed in to trade around par where it was trading as wide as $10/barrel in October 2012, and as wide as $27/barrel in February 2012.Much more at the linked article, including a very nice graph.
Bakken oil on the spot market weakened after Enbridge Inc. restarted the pipeline that takes the crude to its pricing point in Minnesota from fields in North Dakota and Montana.
Enbridge Inc. restarted Line 81, which can carry as much as 210,000 barrels a day into Clearbrook, Minnesota, on May 4, said Larry Springer, a Houston-based spokesman for the company. Enbridge shut the line May 2 after crews discovered contaminated soil near the pipe in North Dakota during an integrity inspection.
Bakken oil in Clearbrook weakened by 75 cents to $4.75 a barrel below West Texas Intermediate in Cushing, Oklahoma, at 12:07 p.m., according to data compiled by Bloomberg. It’s the widest discount for the crude since Jan. 14.
Bakken production in North Dakota increased 6.2 percent to 715,150 barrels a day in February, according to the state Industrial Commission. The Enbridge line is the only pipeline out of the Bakken region. About 71 percent of crude production from the formation left North Dakota by train in February, according to the North Dakota Pipeline Authority.Go to the link for additional information.
The Enbridge North Dakota system runs from Plentywood, Montana, to Clearbrook, and the capacity of the main section from Minot, North Dakota, to Clearbrook is 210,000 barrels a day, according to Enbridge’s website.
“What a world we live in, that 10 gallons can close a 210,000-barrel-a-day pipeline, but I guess these days they take a lot of precautions,” said Andrew Lebow, a senior vice president at Jefferies Bache LLC in New York. “This should not be a long-lasting event.”
Crude oil production in the Bakken grew from 274,000 barrels per day (bbl/d) in January 2011 to 673,000 bbl/d in January 2013, according to the North Dakota Department of Mineral Resources. However, new transportation infrastructure completed in the second half of 2012 helped ease the bottleneck in North Dakota and contributed to a narrowing of the price differential between Bakken and WTI.
Traditionally, the midcontinent pipeline system was configured to deliver crude oil imported to the U.S. Gulf Coast and domestic production from West Texas to the refineries in the Midwest via Cushing, Oklahoma. However, transportation constraints resulting from limited pipeline capacity into and out of Cushing have led to bottlenecks in the region. In February 2012, the discount between Bakken and WTI reached $28 per barrel as increasing Bakken production faced severe transportation constraints.
The addition of new rail takeaway capacity from the Bakken region in spring and fall of 2012 let Bakken crude oil bypass the bottleneck in Cushing, Oklahoma and reach refining markets on the East and West coasts, as well as the Gulf Coast. This takeaway expansion resulted in Bakken crude oil briefly selling at a premium to WTI, which unlike waterborne crudes imported by refineries of the East and West coasts is itself subject to transportation constraints at the Cushing, Oklahoma trading hub.
Pipelines are the most cost-effective way to transport crude oil in the United States, but they are expensive to build and may face regulatory hurdles. For these reasons, companies have turned to rail transport to deliver crude oil across the nation.
Total takeaway capacity from the Williston Basin grew from about 678,000 bbl/d at the end of 2011 to over 1.1 million bbl/d in 2012. Takeaway capacity via rail represented most of this expansion, increasing from an estimated 265,000 bbl/d in 2011 to approximately 660,000 bbl/d in December 2012.Lots of graphs. Worth reading.
Bakken oil on the spot market strengthened to its narrowest discount to the U.S. benchmark crude in six weeks as PBF Energy Inc. expects to receive its first rail shipment from North Dakota at its Delaware refinery.
PBF finished construction on the second train unloading terminal at its 182,800-barrel-a-day Delaware City refinery, the company said in a statement. PBF expects to unload its first unit train of Bakken oil this week, with 17 more scheduled to arrive in the next two weeks.
Bakken oil priced in Clearbrook, Minnesota, narrowed its discount to West Texas Intermediate in Cushing, Oklahoma, by 15 cents, to $3.10 a barrel at 12:13 p.m. New York time, according to data compiled by Bloomberg. The spread between the two oils changed for the first time in two weeks and is the smallest since Dec. 20.Meanwhile, at the linked article, Western Canada Select (WCS), a mixture of heavy crudes from Alberta, is selling at a $30 discount to WTI.
The spread began growing last week after Bill Ordemann, a vice president for Enterprise Product Partners LP, said restrictions at the Seaway pipeline’s Jones Creek terminal in Texas would last until a new pipeline lateral is finished in late 2013.Light Louisiana Sweet oil is selling at a premium of about $20 to WTI.
West Texas Intermediate climbed as much as 0.8 percent after a fifth weekly gain, the longest run of advances since August. The 500 mile (805 kilometer) Seaway line running from Cushing, OK, to Freeport, Texas, resumed service after shutting Jan. 2 to boost capacity to 400,000 barrels a day from 150,000 barrels, Enterprise Products Partners LP (EPD) and Enbridge Inc. (ENB) said Jan. 11. Goldman Sachs Group Inc. (GS) said WTI’s discount to Brent will shrink to $6 a barrel in the second quarter, from $17 today.
“Cushing stocks should start to decline with the start of the extended Seaway pipeline,” ... predicts the spread between WTI and Brent may narrow to $15 a barrel this quarter.I track the spread, occasionally, at this post.
Quick: fill in the blanks:Brent crude production peaked in 1999 with 398 million barrels being produced that year. By 2007, however, it fell to 250 million barrels. Today, it stands at about 220 million. Most analysts expect the number to drop by another third by 2020. Brent is four different blends of crude with the 40's blend being the benchmark for prices. With the production of that blend being very low, only 280,000 barrels a day were produced in the third quarter. Due to most of it being taken out the ground and poor maintenance of production facilities, it opens up the contract for price movements that would not normally happen in a well supplied market.If that continues the world will look for another benchmark with stable pricing: cue WTI. In fact according to a recent article in the "Financial Times," ICE -- the platform where Brent is traded -- is already looking for ways to remedy the situation. It only makes sense that if this continues, the world will once again see WTI as the benchmark for crude, especially as its production is rising and the North Sea falling.
About two months ago, the U.S. Department of Energy started using _______ crude as its benchmark for crude prices. It appears ______ could soon be the benchmark again, though.