Hormuz Risk, Rockies Bottlenecks, and the Gernzee Premium

Marcus Hayes

Monday, October fifth. Here's what moved since Friday morning, and what it means for Rockies and Bakken barrels.

Marcus Hayes

Global first. The seven core OPEC Plus members met online Sunday and agreed to hold November production targets unchanged. That matched expectations, so there's no surprise to price. OPEC's September report had the group at about twenty five million barrels per day in August, up six hundred thirty thousand from July. The next planned increment, one hundred eighty thousand barrels per day, is aimed at December, and it depends on overproducers like Iraq and Kazakhstan submitting compensation cuts. Treat that as a conditional, not a promise.

Marcus Hayes

Futures reopened without drama. December Brent traded between a hundred and one dollars and forty two cents and a hundred and two dollars and twenty five cents Monday morning, down about eight tenths of a percent, per CNBC. W T I eased to ninety dollars and fifty cents, off Friday's settle of ninety one eleven. That leaves the Brent to W T I spread somewhere between ten ninety two and eleven seventy five depending on which pair of prints you use. Either way, call it about eleven dollars of pull toward the Gulf Coast docks.

Marcus Hayes

The supply risk is in Hormuz. Kpler shows Gulf crude exports back at prewar levels, a seven day average of eighteen point three million barrels per day on September thirtieth, with Vortexa's fourteen day figure at eighteen point six. Saudi Arabia is driving that, and its East West line to Yanbu has been flowing again since September twenty second. Roughly forty percent of regional exports now bypass the strait. But Marisks counts at least seven tanker incidents in the past week, including the Aframax Lipsi on October fourth, engine room damaged, crew safe. The Kuwaiti supertanker Kazimah III was hit October first. Marisks suggests Iranian forces may be firing into a kill box. That's their read, not a confirmed pattern. The G7 and EU release of one hundred million barrels is the cap on the upside.

Marcus Hayes

North America. The headline is Cenovus agreeing to buy Athabasca Oil for an enterprise value of five point seven billion Canadian dollars, about four billion U.S., cash and stock, at twelve Canadian dollars a share, a thirteen point four percent premium per Reuters. It adds about forty five thousand barrels of oil equivalent per day of thermal production at Leismer and Corner, plus full ownership of Duvernay Energy. Cenovus targets a hundred and fifteen thousand barrels per day of thermal output by twenty thirty two, and closing is expected in December. Thermal heavy barrels, so the relevance is long dated supply into the Canada to Rockies flow.

Marcus Hayes

On the desk's numbers, W C S at Hardisty widened to sixteen sixty five under W T I over the weekend, tied to Midwest refinery maintenance. Express into Casper is full at two hundred eighty thousand barrels per day. Trans Mountain is steady near sixty percent. Maya flows to Mexico remain curtailed.

Marcus Hayes

United States. No E I A release since Friday. The next report is Wednesday. The last one showed a commercial crude build, but the size varies by table, anywhere from nine hundred twenty two thousand to one point eight million barrels, so I won't hand you a single number. Refinery utilization fell to ninety one point four percent. The part that matters to you: the Rockies, PADD Four, drew eight hundred twenty three thousand barrels to twenty two point five million, while the Midwest built. Cushing remains thin, near operational bottoms, which keeps prompt barrels firm. Baker Hughes Friday: total rigs down one to five hundred ninety eight, oil rigs up four to four hundred eleven. The market is also positioning around a reported Enbridge deal for Tallgrass crude assets, including Pony Express. I haven't seen the terms confirmed in a primary source, so treat it as reported.

Marcus Hayes

Uinta Basin. Waxy output is steady, and nothing new from Veren, Ovintiv, Scout, Uinta Wax, Berry, or SM Energy's XCL position over the weekend. Yellow wax carries about a three dollar and twenty cent premium at Gulf Coast refineries, but railcar freight runs sixteen to eighteen dollars a barrel. That premium doesn't come close to covering it. Salt Lake City refiners cap out around eighty thousand barrels per day, so everything above that goes by heated truck or rail. On the Uinta Basin Railway, the Supreme Court affirmed the environmental review and the D.C. Circuit remanded to the Surface Transportation Board, with the approval left in place. But remand proceedings and Forest Service right of way reviews are still open, the two point two to two point five billion in private financing hasn't closed, and no ground has been broken. Your terminal remains the basin's egress for now.

Marcus Hayes

Bakken. North Dakota output is holding near one point nineteen to one point two million barrels per day. No new Director's Cut over the weekend. Gas capture is above ninety five percent. Dakota Access is running near full, so there's essentially no spot space south. Rail to the coast costs ten to fifteen dollars a barrel, which keeps it uneconomic for barrels that can reach a pipe. Rail is confined to committed refinery and utility contracts. Clearbrook trades a dollar fifty to two ten under Guernsey. Chevron and Hess Midstream keep leaning on longer laterals, and Hess Midstream is guiding to at least five percent volume growth in the second half.

Marcus Hayes

Powder River. Anschutz, Continental, Devon, EOG, and Peak are running steady programs. Plains' five hundred eighty five million dollar purchase of Silver Creek's gathering system keeps consolidating the front end. The headwind is downstream: Kinder Morgan's conversion of Double H, eighty eight thousand barrels per day, to N G L service takes a Dore to Gernzee crude conduit off the board.

Marcus Hayes

Now Gernzee, the piece that matters most. The desk has light sweet holding at about eighty five cents over Cushing and roughly two ten over Clearbrook. Holding is the word. I can't confirm a directional move over a longer window from what I have, and these are desk quotes, not a published assessment, so check them against your own prints.

Marcus Hayes

Why the premium? Tanks at the hub are full of Canadian, Powder River, and Bakken barrels competing for scarce southbound space. Pony Express, about four hundred thirty thousand barrels per day, and Platte are both heavily constrained. Apportionment is so tight that scheduled pipeline space is trading at a premium to physical barrels in the tank. That's the signal. The scarce asset is the slot, not the crude.

Marcus Hayes

The Tallgrass and Bridger thirty day binding joint open season for incentive rates from Gernzee to Cushing still governs commitments. Bridger's proposed five hundred fifty thousand barrel per day cross border line remains in planning, so no relief there.

Marcus Hayes

The netback math has three paths. Take proration on Pony or Platte. Dump into Clearbrook at a two dollar and ten cent penalty. Or pay rail rates that don't work. With the Brent arb near eleven dollars, a barrel that gets a pipeline slot through Gernzee to Cushing and on to the Gulf captures far better netbacks than one stranded in a turnaround heavy Midwest.

Marcus Hayes

That's the brief. Next E I A report is Wednesday.