Gern-zee Holds Its Premium as Southbound Exits Choke

Marcus Hayes

Thursday, October twenty second. Here's what moved.

Marcus Hayes

Global first. Brent spot settled Tuesday at a hundred fifteen dollars and twenty two cents, down three percent on the day, per Refinitiv through the E I A. Prompt futures sit around a hundred eleven to a hundred twelve. Middle East escalation is still holding the premium. The number that matters to us is freight. R B N reports a V L C C from the Gulf Coast to China fixed above eighty million dollars earlier this month, and Goldman puts average crude freight near twenty dollars a barrel, against three a year ago. Spot Brent over W T I is only about seven dollars thirty three. My read is that freight is well above that spread, which is why a fat Brent premium isn't pulling Rockies barrels toward the water.

Marcus Hayes

OPEC plus quotas are unchanged ahead of the November first ministerial. J O D I data, via OilPrice, has Saudi output at six point two four million barrels per day in August with exports at four point four five million. That means Riyadh is covering exports by drawing stocks, not by producing more. Consumer side, the I E A and G7 stock release continues, and the U.S. S P R is at two hundred eighty two point seven million barrels, the lowest since nineteen eighty two. Indian Oil also plans to cut Middle East term purchases for fiscal twenty seven, twenty eight.

Marcus Hayes

North America. November W C S at Hardisty is flat at twenty five fifty under W T I. Canadian export lines run near ninety three percent utilization. Trans Mountain is stuck near sixty percent, roughly four hundred twenty five thousand barrels per day, because Pacific freight keeps the Asia arbitrage shut. Enbridge's Express is full at two hundred eighty thousand barrels per day into Casper, feeding the Gernzee corridor. Mexico, nothing material.

Marcus Hayes

United States. Yesterday I told you to wait for the official print. It's out, and it confirms the structural warning. Commercial crude fell three point oh six one million barrels to four hundred twelve point five one seven million, three percent under the five year average. The desk notes put consensus at a draw of about one point three million, so that's a bigger draw than expected.

Marcus Hayes

But look where it came from. The Gulf Coast, PADD three, drew five point oh four one million barrels, more than the entire national draw, on lingering storm shut ins. Everyone inland built. PADD four, the Rockies, built seven hundred eighty six thousand barrels to twenty three point four nine six million. The Midwest built six hundred thirty five thousand. Cushing added one million barrels to twenty seven point six million, its fourth straight build. The coast is short and the interior is long, and the pipes between them aren't closing that gap.

Marcus Hayes

Production fell four hundred ten thousand barrels per day to thirteen point two seven million, most likely storm related. Refinery utilization slipped a tenth to ninety three point four percent. Gasoline fell three million barrels, distillate built one point seven million. W T I spot closed Tuesday at a hundred seven eighty nine, down one point nine percent, while futures are near ninety nine fifty to a hundred. That spot to futures gap is wide, so check which one you're quoting on the call.

Marcus Hayes

Corporate. Devon is selling its Eagle Ford assets to Crescent Energy for four point two two billion dollars cash, sharpening its focus on the Delaware and the Williston. Enbridge's two point five five billion dollar Tallgrass crude purchase, including a seventy five percent stake in Pony Express, and Hess Midstream's two hundred million dollar deal for Chevron's DJ Basin gathering and twenty percent of Saddlehorn are both still under regulatory review. Baker Hughes has the national rig count at six hundred three.

Marcus Hayes

Uinta Basin. Yellow wax wellhead postings hold ten to fourteen dollars under Cushing. Delivered Gulf Coast wax is indicated around W T I plus three twenty. Take insulated railcar freight at sixteen to eighteen dollars and the basin netback works out to eighty five fifteen to eighty seven fifteen, twelve eighty to fourteen eighty under Cushing. That's no better than the local posting and mostly worse. Salt Lake's five refiners are running about eighty thousand barrels per day of local wax at max. Rail loadings hold near one hundred fifteen thousand barrels per day, all on minimum volume commitments. Spot transloading is idle. Wildcat's Helper terminal keeps expanding toward one hundred thousand. Energy Transfer's Price River project is still in Utah permitting, targeted for late fourth quarter. The Uinta Basin Railway has laid zero track, stalled in S T B remand and Forest Service review. Operators are on steady schedules.

Marcus Hayes

Bakken. The latest Director's Cut has production around one point one five three million barrels per day, thirty three rigs, ninety six percent gas capture, and roughly one hundred thirty M M C F per day flared. Dakota Access is full at seven hundred fifty thousand barrels per day, with walk up tariffs at nine seventy five against committed rates of five sixteen to seven fifty six. Kinder Morgan's Double H conversion to N G L service keeps sixty five to eighty eight thousand barrels per day of crude egress off the board, so DAPL, Enbridge, and Bridger stay under pressure.

Marcus Hayes

Rail to the Pacific Northwest and East Coast runs ten to fifteen dollars per barrel all in, before tank car leases and rack fees. Spot crude by rail doesn't pencil. Throughput is pipeline overage contracts and utility commitments. Chevron trims its Williston program from three rigs to two by December to focus on three mile laterals, and Hess Midstream sees twenty twenty seven gathering throughput down five percent before leveling off.

Marcus Hayes

Powder River. Anschutz, Continental, Devon, EOG, and Peak are steady. Gathering has room. The bottleneck is receipt points into Gernzee. Plains continues integrating Silver Creek.

Marcus Hayes

Now Gernzee, the section that matters. A caveat first. These are desk indications, not published settlements, so treat them as soft. Gernzee Sweet is indicated about eighty five cents over Cushing, near a hundred dollars eighty outright, unchanged on the day. Clearbrook is a dollar fifty to two ten under Gernzee, which is sixty five cents to a dollar twenty five under Cushing.

Marcus Hayes

Inflows are heavy. Express brings two hundred eighty thousand barrels per day of Canadian heavy into Casper and Gernzee, while Bridger and Belle Fourche deliver over three hundred thousand of Bakken crude south into Gernzee tankage. Outflows are the problem. Pony Express is moving roughly two hundred thirty thousand barrels per day against four hundred thirty thousand nameplate on allocation constraints. Platte, at one hundred forty five thousand eastbound to Wood River and Patoka, is heavily prorated. Saddlehorn and Grand Mesa are full with DJ barrels headed to Cushing.

Marcus Hayes

Put that against yesterday's print. The Gulf Coast needs crude, yet Gernzee's southbound exits can't deliver it. With the Rockies building and Cushing building, uncommitted barrels are blocked from Gulf export pricing. They either go north to Clearbrook at a discount or sit in tankage. That's why Gernzee holds a premium while the exits are choked. It's the pipe, not the price.

Marcus Hayes

Three things for your morning. Watch shell capacity, and don't take spot receipts without a confirmed downstream nomination or a local buyer. Watch the manifold, because heavy Canadian streams off Express can contaminate light sweet batches on sulfur and gravity. And audit nominations, and bill deficiency fees on unused minimum volume capacity.

Marcus Hayes

That's the brief. Back tomorrow.