Crude Spreads, Freight, and the Battle for Inland Barrels

Marcus Hayes

Brent crude futures popped up a dollar eighty five to seventy five eighty five a barrel after those drone strikes near Red Sea shipping lanes. But if you glance over at North American inland markets, the real story is sitting in the physical spreads.

Marcus Hayes

Western Canadian Select at Hardisty widened sixty cents out to thirteen dollars and ten cents under WTI. And that is happening even with the Trans Mountain Expansion running at eighty five percent capacity. You might think, okay, is there a crude bottleneck in Alberta? Well, no. The unexpected driver is clear down on the US Gulf Coast.

Marcus Hayes

Gulf Coast Aframax charter rates spiked fifteen percent to forty five thousand dollars a day. That sudden jump in seaborne freight acts like a direct penalty on heavy barrels trying to clear into international markets.

Marcus Hayes

Meanwhile, WTI moved up a dollar forty to seventy one ninety a barrel. The EIA Weekly Petroleum Status Report confirmed a one point four million barrel draw at Cushing, down to twenty four point two million barrels. That pushed US refinery utilization up one point two percentage points to ninety two point four percent.

Marcus Hayes

Let us re derive that inland mechanism in plain words. When Cushing inventories draw down while Gulf Coast export spreads widen, inland refiners are essentially forced to bid up local barrels. They have to keep those physical volumes from flowing south down pipelines like Seaway or Marketlink.

Marcus Hayes

Having watched Midcontinent physical trading desks during inventory draws over the last twenty years, I keep thinking back to 2018. Back during those pipeline bottlenecks, physical traders completely mispriced similar Cushing draws because they misread takeaway capacity. But today, if you look at the recent FERC tariff filings on interstate lines, physical barrels are clearly prioritizing long term pipeline commitments over spot sales.

Marcus Hayes

That bring us right to the Guernsey hub in Wyoming. Physical Guernsey crude flipped to an eighty five cent per barrel premium over Cushing. That is a thirty five cent gain over the last twenty four hours alone, expanding on the fifty cent premium we saw recently.

Marcus Hayes

Guernsey is also trading at a two dollar and ten cent premium over Clearbrook. The big catalyst here is that Pony Express line space apportionment hit fourteen percent this morning. As Kinder Morgan progresses on converting the Double H pipeline to NGL service, about thirty thousand barrels a day of Bakken crude are being forced off northern routes. That sudden scramble for takeaway is pushing Guernsey terminal tankage fees up to record highs.

Marcus Hayes

Over in North Dakota, the DMR Director's Cut reported Williston Basin crude production holding steady at one point two three million barrels per day, with gas capture compliance at ninety five percent. Producers like Chord Energy and ConocoPhillips are maintaining minimal crude by rail loadings. Why? Because rail suffers a three dollar and fifty cent per barrel netback disadvantage compared to pipe.

Marcus Hayes

To re derive rail economics in plain words: unless Bakken rail freight rates drop below seven dollars and fifty cents per barrel to the East Coast, pipeline tariffs on systems like DAPL and Bridger are going to capture every single discretionary barrel.

Marcus Hayes

Down in the Powder River Basin, operators like Anschutz and EOG Resources are keeping steady throughput of two hundred thirty five thousand barrels per day into Guernsey via the Iron Horse system. And over in Utah's Uinta Basin, the discount on yellow and black waxy crude narrowed to two dollars and seventy five cents under WTI as Salt Lake City refiners finish up their fall maintenance.

Marcus Hayes

On the infrastructure front, the legal journey continues. Following the Supreme Court and DC Circuit rulings remanding the eighty five mile Uinta Basin Railway project back to the Surface Transportation Board, producers like Ovintiv and XCL Resources still have to rely entirely on truck to rail transload terminals at Price and Carbon County. So for now, physical truck logistics remain the only game in town out there. Alright, that is the layout of the inland crude grid today.