Midwest Builds, Rockies Draw: The Pipeline Squeeze

Marcus Hayes

Eight hundred twenty three thousand barrels. That's what the Rockies lost in one week, while the Midwest was busy adding more than a million. Same country, same pipeline map, opposite directions. And I, I think that split is the whole story of this week's oil data. If you caught the last episode, the Midwest was already stacking up crude, a build of four point four million barrels. Well, it did it again. Let me set the backdrop first, because it makes the inland picture stranger. Brent is holding firm near ninety four dollars a barrel, as I have it, on lingering Red Sea tanker risk. Meanwhile Western Canadian Select at Hardisty is sitting about sixteen dollars under WTI. That's with Enbridge Mainline apportionment, plus Pemex trimming crude exports to feed its Dos Bocas refinery. So heavy barrels get stuck inland. Treat those market levels as my setup, not gospel, um, check a live screen for the exact numbers.

Marcus Hayes

Now the print itself. This is the Energy Information Administration's Weekly Petroleum Status Report, released September 30, covering the week ending September 25. Total U.S. commercial crude stocks rose by 922,000 barrels, to 427.3 million barrels. That's a boring headline. Barely a rounding error on a stockpile that size. EIA even notes that totals may not equal the sum of components because of independent rounding. But open the regional tape and it's not boring at all. Midwest, PADD 2, added 1.04 million barrels to reach 105.1 million. Rocky Mountains, PADD 4, drew 823,000 barrels down to 22.5 million. The Gulf Coast, PADD 3, built about 3.4 million. And the West Coast, PADD 5, fell by about 2.33 million barrels, to 44.2 million. Add those up with the small East Coast draw and you land right on that 922,000. So the national number is a tug of war between regions that can't easily send barrels to each other.

Marcus Hayes

Now, you might say, Marcus, regions wiggle every week. Fair. I, I thought that too, at first. But the wiggle has a direction, and the direction tells you where the pipes are pinched. Which brings me to Cushing, Oklahoma. It's the delivery point for the WTI futures contract, so financial traders stare at its inventory like it's a heartbeat monitor. What the screen doesn't show you is the floor. RBN Energy wrote back in 2018 that Cushing hit 21.8 million barrels in early August of that year, with estimated tank bottoms around 14.6 million. Capacity at the hub was around 94 million. Think of a milkshake and a straw. Near the bottom, you stop getting shake and start getting air. The worry is pumps pulling vapor, cavitation, instead of oil. So with stocks pinned near twenty two million, as the outline for today has it, the physical problem isn't price. It's, uh, can I actually move a batch through? Imagine being the scheduler trying to slot pipeline batches into a hub running on vapor, during fall refinery maintenance, when refinery utilization is slipping. That's a headache I would not want.

Marcus Hayes

So why are barrels stuck inland? Let's walk through the gathering side, starting with the Uinta Basin in Utah, which makes a waxy crude. Think of it like cold candle wax, it doesn't flow unless you keep it hot. Yellow wax commands about a three dollar twenty premium over WTI for Gulf Coast refiners. Nice. But Salt Lake City refinery demand is capped below 80,000 barrels a day. The way out is the eighty five mile Uinta Basin Railway, and that's tied up in federal appeals at the D.C. Circuit. So operators like Ovintiv and XCL Resources are looking at sixteen to eighteen dollars a barrel for coiled, insulated railcars. Back of the envelope, a three dollar premium against a sixteen to eighteen dollar tariff leaves you underwater by roughly thirteen to fifteen dollars. The premium is real. The road to it just costs more than it pays.

Marcus Hayes

Over in the Williston Basin, things are calmer. North Dakota production holds near 1.19 million barrels a day, with the state confirming 95.8 percent gas capture. But the Dakota Access Pipeline is running near nameplate capacity. A full pipe means the marginal barrel needs a rail car, and the pull is from Pacific Northwest refineries, after that steep 2.33 million barrel draw on the West Coast I mentioned. Then the Powder River Basin, where the plumbing is changing hands. Plains All American is buying Silver Creek's 600 mile gathering network, plus a 49 percent stake in the Powder River Gateway joint venture, for five hundred eighty five million dollars. And Kinder Morgan is preparing to convert its 88,000 barrel a day Double H crude pipe to N G L service. So a producer there has to lock down another on-ramp before the old one disappears.

Marcus Hayes

Which leads to the part that tripped me up. Everything funnels toward Guernsey, Wyoming. And here's the paradox, tanks are full, yet Guernsey Sweet is trading at an eighty five cent premium over Cushing, and two dollars ten over Clearbrook. Full tanks usually mean a discount. Right? I, I, I had to reread that. Here's how I make sense of it. Picture a parking lot that's packed, but the highway ramp out is a single toll lane. The cars aren't cheap, the ramp slot is what's scarce. Tallgrass's Pony Express, 230,000 barrels a day, is under heavy apportionment, meaning shippers get only a share of what they nominate. Saddlehorn's connector is restricted to 25,000 barrels a day. And Enbridge is closing its two point five five billion dollar crude acquisition, so ownership of the plumbing is shifting too. The barrels that win a slot get paid for it. The rest sit and wait, which, um, would be the Rockies draw and the Midwest pile at the same moment. Two numbers, one squeeze. That's the thing I'd hold onto: 823,000 barrels left the Rockies, and the bottleneck is a ramp, not a shortage. Anyway, that's my take. Back next time.