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.
"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.
Clearbrook barrels typically trade at a premium to Williston barrels to account for transportation costs westward, with the spread averaging at $1.14/b so far in June. But the recent slump in the Western Canadian crude market, which also supplies the Midwest hub, has limited the rise of Clearbrook crude.
"Clearbrook [is] capped with Canada being weak," a Bakken trader said. "How much volume can go out on rail to have the field volume cleared is going to be interesting."
GUERNSEY TRAILING BEHIND
Bakken differentials in the Rockies region, meanwhile, had a more conservative rise Wednesday, remaining in the negative territory.
In the Guernsey, Wyoming, hub, Bakken was talked valued at NYMEX WTI CMA minus 65 cents/b, 20 cents higher compared with Tuesday. This put it at an 85-cent discount to Williston and Clearbrook barrels, reversing the typical spreads. Guernsey barrels were last valued lower than Clearbrook on March 7, when it was at a 15-cent discount to its Midwest counterpart.
The Guernsey hub takes a longer route to get to the US Gulf Coast through the Cushing, Oklahoma, hub and mostly services the western US. Sources also said that the Rockies hub has more storage capacity and less takeaway, making it the "weakest link" among the Bakken hubs as of late.
WIDENING BRENT-WTI SPREAD
While the overall crude complex has continued to increase over the previous few months, the NYMEX WTI futures has been hampered by strong production in the US, especially out of the Permian basin.
According to US Energy Information Administration data, crude oil production out of the Permian basin has reached an estimated 3.2 million b/d, a notable 1.6 million b/d above the 1.6 million b/d average over the previous five years.
In addition to the glut of oil coming out of the West Texas region hampering prices, there is a lack of infrastructure to carry oil from the production areas to refineries and ports along the Gulf Coast.
While many investments have been made to bolster the infrastructure in the area, until the projects are completed, or the unlikely situation of a production slowdown, the high spread between Brent and WTI should continue.
