Guernsey Egress Tightens as Inland Crude Builds

Marcus Hayes

Good morning. Here's what matters before Monday's scheduling call. Markets are closed, so everything below is Friday's settle.

Marcus Hayes

Global first. Brent settled Friday, October twenty third, between one hundred sixteen dollars and seventy two cents and one hundred sixteen ninety one. That's up three fifty five, or three point one four percent on the day, and up over six percent on the week, the highest since June twenty twenty two. The driver is the U.S. and Iran. U.S. leadership publicly denied active negotiations, while reports point to contingency strike planning after the midterms. That's reporting, not confirmation. Iran's military leadership says it's ready for asymmetric warfare. Houthi strikes on Saudi energy infrastructure continue, the State Department ordered nonessential personnel out, and Aramco told Dhahran headquarters staff to work remotely. OPEC plus quotas are unchanged going into the November first ministerial. JODI data via OilPrice has Saudi crude output holding at six point two four million barrels per day in August, with exports of four point four five million supported by domestic inventory draws, not more drilling.

Marcus Hayes

The number that matters for us is freight. RBN reports supertanker fixtures from the Gulf Coast to Asia above eighty million dollars. Goldman puts waterborne crude freight near twenty dollars a barrel, against roughly three historically. That wedge is why inland light sweet isn't capturing Brent's strength. The Strategic Petroleum Reserve sits at two hundred eighty two point seven million barrels, the lowest since nineteen eighty two.

Marcus Hayes

North America. November W C S at Hardisty settled Friday at twenty five fifty five under W T I, per CalRock via Reuters. That's thirty five cents wider than Thursday's twenty five twenty under, and implies about seventy seven seventy two outright. The widening ties to heavy freight premiums and weak Gulf Coast heavy fuel oil margins. Canadian export trunklines are near ninety three percent utilization. Trans Mountain is throttled near sixty percent, about four hundred twenty five thousand barrels per day, because tanker freight has shut the arbitrage across the Pacific. That pushes surplus heavy south into the Midcontinent. Enbridge's Express is at one hundred percent, two hundred eighty thousand barrels per day, into Casper and Guernsey. Mexico, nothing material.

Marcus Hayes

United States. W T I settled Friday at one hundred three twenty seven, up three eighty, or three point eight two percent. No new E I A report since last episode, but the latest one matters for the Rockies. Commercial crude fell three point zero six one million barrels to four hundred twelve point five one seven million, a bigger draw than the consensus one point three. But that draw was coastal. The Gulf Coast fell five point oh four one million on storm shut ins, while inland stocks built. PADD four, the Rockies, added seven hundred eighty six thousand barrels to twenty three point four nine six million. Cushing built one million to twenty seven point six, its fourth straight weekly build. Production was thirteen point two seven million barrels per day, and refinery utilization eased to ninety three point four percent.

Marcus Hayes

Baker Hughes held flat at six hundred three rigs, up fifty three from a year ago. Oil rigs rose one to four sixty, gas fell one to one thirty two. Triple digit W T I with no rig additions is capital discipline. Don't underwrite volume growth off this price. On deals, Devon is selling its Eagle Ford assets to Crescent for four point two two billion in cash. Antitrust reviews remain active on Enbridge's two point five five billion dollar purchase of Tallgrass crude assets, including seventy five percent of Pony Express, and on Hess Midstream's roughly two hundred million dollar buy of Chevron's D J Basin gathering plus a twenty percent stake in Saddlehorn.

Marcus Hayes

Uinta Basin. Yellow wax wellhead postings hold at ten to fourteen dollars under Cushing. Those are indicative desk quotes, not published prices. Delivered Gulf Coast waxy trades at W T I plus three twenty, about one oh six forty seven. Coiled, insulated railcar freight runs sixteen to eighteen dollars, so the netback is eighty eight forty seven to ninety forty seven, twelve eighty to fourteen eighty under Cushing. Spot rail is shut and underwater against Salt Lake postings. The five Salt Lake refineries are near their ceiling of about eighty thousand barrels per day of waxy crude. Rail loadings average about one hundred fifteen thousand, all committed under minimum volume contracts, with spot racks idle. Wildcat's Helper terminal is expanding toward one hundred thousand. Energy Transfer's Price River rail terminal is in Utah state review, targeting a fourth quarter decision.

Marcus Hayes

On the Uinta Basin Railway, no track has been laid. Per the desk brief, the D C Circuit remanded the approval to the Surface Transportation Board in October. The approval stays in place, but the Board owes deeper review of downline accident and wildfire risk along the Colorado River corridor, plus downstream emissions. The Forest Service right of way permit stays paused until the Board's supplemental order. Veren, Ovintiv, Scout, XCL, Uinta Wax, Berry, Caerus and SM Energy are all running steady programs.

Marcus Hayes

Bakken. The Director's Cut holds state output near one point one five three million barrels per day, thirty three rigs, ninety six percent gas capture, and about one hundred thirty million cubic feet per day flared. Dakota Access is full at its effective 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 permanently removed sixty five to eighty eight thousand barrels per day of crude takeaway, pushing Williston barrels onto Dakota Access and Bridger and Belle Fourche. All in rail to the coasts runs ten to fifteen dollars before car leases and destination rack tariffs. Spot is closed. Chevron drops one Williston rig by December, three to two, to drill longer laterals, and Hess Midstream sees twenty twenty seven gathering dipping about five percent. Chord, Continental, Devon, and ConocoPhillips are steady.

Marcus Hayes

Powder River. Gathering capacity upstream is sufficient, and Anschutz, Continental, Devon, EOG and Peak are drilling disciplined schedules. The constraint is downstream, at the receipt manifolds feeding the Guernsey headers. Plains continues integrating the Silver Creek system.

Marcus Hayes

Now Gernzee, the section that matters most. Guernsey Sweet was flat over the last day or two at eighty five cents over Cushing, roughly one oh four twelve outright on Friday's W T I. Clearbrook trades one fifty to two ten under Gernzee, or sixty five cents to one twenty five under Cushing. Inflows are heavy. Express delivers two hundred eighty thousand barrels per day of Canadian crude into Casper and Gernzee, and Bridger and Belle Fourche feed over three hundred thousand of Bakken.

Marcus Hayes

Egress is the problem. Pony Express is constrained to about two hundred thirty thousand barrels per day out of Gernzee, against a four hundred thirty thousand system nameplate, which the desk attributes to limits at the Midcontinent refineries, McPherson, El Dorado and Ponca City, and to upstream proration. Platte, at one hundred forty five thousand eastbound to Wood River and Patoka, is heavily prorated. Saddlehorn and Grand Mesa are full of D J barrels headed to Cushing.

Marcus Hayes

With December nominations locked, this week is execution. First, uncommitted barrels shut out of the prorated southbound lines have two choices. Take the one fifty to two ten discount to clear northeast to Clearbrook, or pay for storage in Gernzee tankage. Second, batch segregation. Heavy Canadian crude moving on Express into Casper and Gernzee creates real gravity and sulfur contamination risk at shared manifold headers, and an off spec rejection at a refinery is a serious liability. Third, enforce the minimum volume deficiency charges against shippers whose nominated volumes were cut by downstream apportionment. That's contract execution, not a negotiation.

Marcus Hayes

Longer term, Bridger's proposed five hundred fifty thousand barrel per day, thirty six inch line from the Canadian border to Gernzee, targeting July twenty twenty seven, can't be absorbed by the hub without more Pony Express egress. That's why the Tallgrass and Bridger joint tariff open seasons matter. The August open seasons on Pony Express and Seahorse, which began August twenty first, used existing capacity. Per Midstream Calendar, no capacity amount, rates, or results were disclosed, and no expansion was announced. Watch for any follow up.

Marcus Hayes

That's the board. Watch Sunday evening's open.