North Dakota crude rail cars were delivered to a U.S. East Coast refiner during week ending September 22 for the first time since July, as the recent, relatively wide NYMEX Light Sweet Crude (WTI)/ICE Brent spread incentivized rail movements. The Brent/WTI spread widened following Harvey-related refinery outages in the U.S. Gulf Coast.
North Dakota crude-by-rail loadings rebound in September
North Dakota crude-by-rail shipments are pacing higher month-on-month so far in September due to a relatively wide WTI/ICE Brent spread, after posting the lowest loading average since early 2012 in August, Genscape’s PetroRail Report shows.
The September loading average for monitored crude-by-rail terminals in North Dakota, as of September 22, is about 140,000 barrels per day (bpd), and is the first monthly increase in loadings since March and the biggest month-on-month increase since March 2016.
This month’s increase comes after August finished at its lowest point since January 2012 at 114,000 bpd. The steady decline in rail movements is due to Bakken shippers shifting towards pipeline transport after Energy Transfer Partners’ 520,000 bpd Dakota Access pipeline (DAPL) came online. The rail loading average in May was 240,000 bpd, when linefill and interstate operations on DAPL began mid-month, while rail loadings in January were about 265,000 bpd.
Wider Brent/WTI on Hurricane Harvey promotes rail loadings
The increased Bakken loadings this month have been a result of the recent widening of the WTI/Brent spread over the last two months. The widening spread, which went from $4.16/bbl on August 31 to $5.46/bbl by September 1, was aided by Hurricane Harvey’s pressure on domestic crude grades as Gulf Coast refineries were affected by the storm.
At the peak of the hurricane-related refinery outages on August 30, more than 3.7mn bpd of primary processing refining capacity was offline, according to Genscape’s Refinery Intelligence Report.
With more than 20 percent of the nation’s refinery capacity absent from the market causing tepid demand, front-month WTI declined from $48.41/bbl on August 23 to $45.96/bbl on August 30.
The relatively wide spread between the international benchmarks, which coastal refiners use in judging the economics of railing Bakken crude versus more expensive Brent-based oil, has continued, averaging $5.63/bbl month-to-date as of September 22. It averaged $2.45/bbl in July and $3.06/bbl in the first half of August.
Also contributing to the pressure on WTI through August and September was a growth in crude inventories at the NYMEX injection point of Cushing, OK, according to Genscape’s Cushing Crude Oil Storage Report. Cushing stocks were about 58.71mn bbls as of August 1, and increased to about 63.18mn bbls as of September 22, as pipeline flows from Cushing to the Gulf Coast were curtailed during Harvey, according to Genscape’s MidContinent Pipeline data.
The last rail unloadings in the region were in the week ending July 7, when 12,000 bpd were registered at Phillips 66’s 238,000 bpd Bayway refinery in Linden, NJ. The last volumes unloaded at the PES refinery were week ending June 9, at 11,000 bpd, and last week’s unloading average was the highest at the refinery since week ending May 12.
In addition to the wide WTI/Brent spread, the Bakken shipments by rail came as the Philadelphia refiner reduced run rates recently on crude supply issues due to choppy seas following recent inclement weather in the Atlantic Ocean hindering cargo movements, sources said.
News on September 25 showed a commitment to crude production cuts by the Organization of the Peroleum Exporting Countries (OPEC), which contributed support for the global benchmark ICE Brent. It pushed the Brent/WTI spread to nearly $7/bbl and provided further incentive for East Coast refiners to rail-in Bakken crude.
Genscape’s PetroRail Report provides fundamental rail loading and unloading volume data, forward-looking and trend market analysis, and spot assessments for U.S. crude benchmarks. The data included in the report can be leveraged to develop new trading strategies, identify economics, and determine the price of the marginal barrel. To learn more, or to request a free trial of Genscape’s PetroRail Report, please click here.