Crude Plumbing: Bakken Bottlenecks and Guernsey Apportionment

Marcus Hayes

Saturday, October tenth. Here's what moved since Friday's open, and what it means for Rockies and Bakken barrels.

Marcus Hayes

Global first. Brent settled Friday at a hundred and four dollars and seventy two cents, up forty four cents, or point four two percent, after trading lower earlier in the session. Reuters said the morning weakness came from President Trump calling Iran talks productive, pledging no strike before the November third midterms, and from reports that China will resume refined fuel exports after Golden Week. The recovery came from the Gulf. Iran's foreign minister, per Tasnim, said Tehran is reviewing the American response to a proposal that would reopen the Strait of Hormuz within seven days. That's a headline, not a deal. Washington also sanctioned individuals, networks and seventeen vessels carrying Iranian crude and products, and Houthi strikes across the Arabian Peninsula keep shipping risk alive. On the offset side, the G7 and I E A are pushing a hundred million barrels of emergency diesel and crude, though Reuters noted analysts and some governments don't read that as a fresh hundred million. OPEC plus has nothing new: November baselines unchanged, and the provisional hundred and eighty thousand barrel per day December increment is still tied to compensation cuts from Iraq and Kazakhstan.

Marcus Hayes

North America. Western Canadian Select for November delivery at Hardisty settled at twenty five dollars and fifty five cents under W T I, per CalRock. That's wider than Thursday's twenty twenty, more than ten dollars wider than this point last month, and the widest since twenty twenty three. Rory Johnston at Commodity Context blames a heavy fuel oil glut on the Gulf Coast and surging marine freight. On the plumbing, Canadian export lines are running near ninety three percent full, roughly three hundred fifty thousand barrels per day spare. Enbridge's Express into Casper is full at its two hundred eighty thousand barrel nameplate, and Trans Mountain sits near sixty percent. Winter diluent blending will tighten effective heavy capacity. Canadian rigs rose six to two hundred twenty two. Mexico: nothing material beyond the Financial Times report, relayed by Reuters, that Washington wants more cross border tie ups between energy companies.

Marcus Hayes

United States. W T I settled at ninety one eighty five, up thirty six cents. The Brent to W T I spread widened to twelve eighty seven from twelve sixty three Thursday, and a spread that wide pulls barrels toward Gulf Coast docks. Hurricane Isaias is the swing factor. Reuters, citing the Marine Minerals Administration, had about one point three million barrels per day, sixty two point nine percent of Gulf output, shut in as of Thursday. By Friday operators had shut in more than seventy percent.

Marcus Hayes

Baker Hughes, released Friday: the total rig count rose five to six hundred and three, the highest since May twenty twenty four, and fifty six above a year ago. Oil rigs gained six to four hundred sixty two, gas dropped one to a hundred thirty two, and the Permian added four to two hundred seventy four. I don't have a consensus figure, so I won't call it a surprise. Wednesday's E I A data is the baseline, not news. Commercial crude drew about three point two million barrels to four hundred twenty four point one million, against a Reuters poll expecting a one point seven million build. Cushing built four hundred forty thousand barrels to twenty four point seven million, still one point eight four million under the five year average. PADD two built one point eight seven two million on fall turnarounds, PADD four drew a hundred forty four thousand to twenty two point three five million, and utilization was ninety two point seven percent. On policy, Reuters reports three sources saying the administration will push use of the Defense Production Act to lift oil and fuel output. Details are thin.

Marcus Hayes

Uinta Basin. The railway has nothing new. The D.C. Circuit remanded the case to the Surface Transportation Board, which leaves the original approval in place. The supplemental environmental review and Forest Service permits are still pending, Senator Bennet and Representative Neguse still oppose it, the roughly two point two to two point five billion dollar financing isn't finalized, and construction hasn't started. Now the arithmetic that matters. Indicative yellow wax is ten to fourteen dollars under Cushing at the wellhead. Gulf Coast refiners are indicating about three twenty over W T I for waxy. Heated, insulated rail to the Gulf runs sixteen to eighteen dollars a barrel, so spot rail nets twelve eighty to fourteen eighty worse than selling locally. Rail stays limited to term commitments. Those are indications, not posted prices. Salt Lake's five refineries, about two hundred five thousand barrels per day of capacity, are taking roughly eighty thousand of waxy. Operators, Veren, Ovintiv, Scout, XCL, Berry, Caerus and SM, are in normal course development.

Marcus Hayes

Bakken. Williston crude is holding around one point nineteen to one point two million barrels per day, North Dakota near one point one four. Gas capture is ninety five point five percent despite a high gas oil ratio of three point oh nine M C F per barrel. Wells with three to four mile laterals are sixty three percent of recent completions. The big item is Hess Midstream and Chevron. Hess Midstream acquires Chevron's DJ Basin gathering and storage and a twenty percent Saddlehorn stake, and Chevron gives up its forty percent equity in Hess Midstream. For the Bakken, commercial agreements are extended through twenty forty five with lower fees, converted to fixed fees with an eighty percent minimum revenue commitment. Chevron also plans to drop from three rigs to two in December, which is projected to trim Hess Midstream Bakken throughput five percent in twenty twenty seven before volumes plateau in twenty twenty eight. Dakota Access is near capacity with little spot room south. Kinder Morgan's eighty eight thousand barrel Double H line is converting to N G L service, pushing crude toward Bridger's Belle Fourche system. Coastal rail at ten to fifteen dollars a barrel keeps spot rail out of the money.

Marcus Hayes

Powder River. Drilling and completions look steady across Anschutz, Continental, Devon, EOG and Peak. Gathering is feeding Bridger and Belle Fourche headers bound for Gernzee, and Plains continues folding the Silver Creek assets, a five hundred eighty five million dollar deal, into its Gernzee delivery terminals.

Marcus Hayes

Now Gernzee, which is the section that matters. Light sweet is holding at an indicative premium of about eighty five cents over Cushing, and Clearbrook trades one fifty to two ten under Gernzee. Both are steady over the last twenty four hours. The story is space, not price. Pony Express, about four hundred thirty thousand barrels per day as a system and roughly two hundred thirty thousand out of Gernzee, and Enbridge's Platte, a hundred forty five thousand to Wood River and Patoka, are both heavily apportioned.

Marcus Hayes

On the open season: Tallgrass and Bridger launched thirty day binding seasons on August twenty first for Pony Express and Seahorse out of Gernzee, offering incentive rates on existing capacity. This is not new pipe. No volumes, rates or term were disclosed, that window has closed, and I haven't seen results.

Marcus Hayes

So a shipper has three choices. Take proration on Pony or Platte and capture the twelve eighty seven Brent spread toward the Gulf, which still gives the best netback even with volume shaved. Sell east into Clearbrook at a dollar fifty to two ten under, into a PADD two market already carrying that one point eight seven million barrel turnaround build. Or rail to the coast at ten to fifteen dollars, which erases the arb. Allocation at Gernzee is the bottleneck.

Marcus Hayes

That's the tape. Watch Isaias and the Hormuz headlines Monday.