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Midwest Builds, Rockies Draw: The Pipeline Squeeze · The Gathering Line

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  Eight hundred twenty three thousand barrels.
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  That's what the Rockies lost in one week, while the Midwest was busy adding more
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  than a million.
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  Same country, same pipeline map, opposite directions.
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  And I, I think that split is the whole story of this week's oil data.
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  If you caught the last episode, the Midwest was already stacking up crude,
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  a build of four point four million barrels.
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  Well, it did it again.
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  Let me set the backdrop first, because it makes the inland picture stranger.
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  Brent is holding firm near ninety four dollars a barrel, as I have it,
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  on lingering Red Sea tanker risk.
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  Meanwhile Western Canadian Select at Hardisty is sitting about sixteen dollars under
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  WTI.
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  That's with Enbridge Mainline apportionment, plus Pemex trimming crude exports to
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  feed its Dos Bocas refinery.
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  So heavy barrels get stuck inland.
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  Treat those market levels as my setup, not gospel, um, check a live screen for the
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  exact numbers.
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  Now the print itself.
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  This is the Energy Information Administration's Weekly Petroleum Status Report,
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  released September 30, covering the week ending September 25.
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  Total U.S.
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  commercial crude stocks rose by 922,000 barrels, to 427.3 million barrels.
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  That's a boring headline.
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  Barely a rounding error on a stockpile that size.
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  EIA even notes that totals may not equal the sum of components because of
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  independent rounding.
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  But open the regional tape and it's not boring at all.
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  Midwest, PADD 2, added 1.04 million barrels to reach 105.1 million.
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  Rocky Mountains, PADD 4, drew 823,000 barrels down to 22.5 million.
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  The Gulf Coast, PADD 3, built about 3.4 million.
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  And the West Coast, PADD 5, fell by about 2.33 million barrels,
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  to 44.2 million.
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  Add those up with the small East Coast draw and you land right on that 922,000.
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  So the national number is a tug of war between regions that can't easily send
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  barrels to each other.
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  Now, you might say, Marcus, regions wiggle every week.
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  Fair.
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  I, I thought that too, at first.
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  But the wiggle has a direction, and the direction tells you where the pipes are
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  pinched.
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  Which brings me to Cushing, Oklahoma.
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  It's the delivery point for the WTI futures contract, so financial traders stare at
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  its inventory like it's a heartbeat monitor.
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  What the screen doesn't show you is the floor.
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  RBN Energy wrote back in 2018 that Cushing hit 21.8 million barrels in early August
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  of that year, with estimated tank bottoms around 14.6 million.
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  Capacity at the hub was around 94 million.
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  Think of a milkshake and a straw.
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  Near the bottom, you stop getting shake and start getting air.
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  The worry is pumps pulling vapor, cavitation, instead of oil.
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  So with stocks pinned near twenty two million, as the outline for today has it,
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  the physical problem isn't price.
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  It's, uh, can I actually move a batch through?
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  Imagine being the scheduler trying to slot pipeline batches into a hub running on
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  vapor, during fall refinery maintenance, when refinery utilization is slipping.
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  That's a headache I would not want.
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  So why are barrels stuck inland?
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  Let's walk through the gathering side, starting with the Uinta Basin in Utah,
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  which makes a waxy crude.
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  Think of it like cold candle wax, it doesn't flow unless you keep it hot.
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  Yellow wax commands about a three dollar twenty premium over WTI for Gulf Coast
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  refiners.
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  Nice.
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  But Salt Lake City refinery demand is capped below 80,000 barrels a day.
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  The way out is the eighty five mile Uinta Basin Railway, and that's tied up in
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  federal appeals at the D.C.
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  Circuit.
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  So operators like Ovintiv and XCL Resources are looking at sixteen to eighteen
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  dollars a barrel for coiled, insulated railcars.
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  Back of the envelope, a three dollar premium against a sixteen to eighteen dollar
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  tariff leaves you underwater by roughly thirteen to fifteen dollars.
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  The premium is real.
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  The road to it just costs more than it pays.
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  Over in the Williston Basin, things are calmer.
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  North Dakota production holds near 1.19 million barrels a day,
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  with the state confirming 95.8 percent gas capture.
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  But the Dakota Access Pipeline is running near nameplate capacity.
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  A full pipe means the marginal barrel needs a rail car, and the pull is from Pacific
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  Northwest refineries, after that steep 2.33 million barrel draw on the West Coast I
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  mentioned.
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  Then the Powder River Basin, where the plumbing is changing hands.
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  Plains All American is buying Silver Creek's 600 mile gathering network,
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  plus a 49 percent stake in the Powder River Gateway joint venture,
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  for five hundred eighty five million dollars.
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  And Kinder Morgan is preparing to convert its 88,000 barrel a day Double H crude
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  pipe to N G L service.
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  So a producer there has to lock down another on-ramp before the old one disappears.
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  Which leads to the part that tripped me up.
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  Everything funnels toward Guernsey, Wyoming.
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  And here's the paradox, tanks are full, yet Guernsey Sweet is trading at an eighty
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  five cent premium over Cushing, and two dollars ten over Clearbrook.
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  Full tanks usually mean a discount.
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  Right?
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  I, I, I had to reread that.
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  Here's how I make sense of it.
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  Picture a parking lot that's packed, but the highway ramp out is a single toll lane.
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  The cars aren't cheap, the ramp slot is what's scarce.
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  Tallgrass's Pony Express, 230,000 barrels a day, is under heavy apportionment,
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  meaning shippers get only a share of what they nominate.
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  Saddlehorn's connector is restricted to 25,000 barrels a day.
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  And Enbridge is closing its two point five five billion dollar crude acquisition,
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  so ownership of the plumbing is shifting too.
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  The barrels that win a slot get paid for it.
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  The rest sit and wait, which, um, would be the Rockies draw and the Midwest pile at
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  the same moment.
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  Two numbers, one squeeze.
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  That's the thing I'd hold onto: 823,000 barrels left the Rockies,
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  and the bottleneck is a ramp, not a shortage.
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  Anyway, that's my take.
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  Back next time.