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Why $92 WTI Doesn’t Mean Easy Money · The Gathering Line

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  Ninety-two dollars and twenty-two cents.
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  That was the prompt settlement on West Texas Intermediate after an eleven dollar and
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  twenty-one cent jump in a single session, while Brent blew past ninety-four dollars
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  and ten cents across the weekend.
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  If you only look at your screen, you see green candles everywhere.
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  You think every crude producer between Calgary and Midland is popping champagne.
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  But if you have ever spent a week on an actual physical trading desk,
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  you know that paper rallies and physical reality rarely travel in the same lane.
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  It, it reminds me of that classic trap.
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  You see headline crude ripping higher because tanker traffic through the Strait of
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  Hormuz is practically paralyzed, Southern Iraqi and Kuwaiti export storage is
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  brimming over, and Atlantic Basin refiners are panicking for sweet waterborne
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  barrels.
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  So the paper market goes wild.
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  But down on the ground, in the pipe, the friction is brutal.
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  If widening inland differentials and pipeline transit tariffs eat up sixty percent
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  of that price pop before your barrel touches a manifold, what did you actually gain?
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  Consider Canada right now.
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  Up in Alberta, Western Canadian Select at Hardisty widened out to fifteen dollars
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  and fifty cents under WTI.
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  Why?
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  Because heavy fall maintenance across oil sands upgraders threw off the diluent
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  balance, leaving heavy sour crude stuck in place.
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  The Enbridge Mainline cross-border capacity is pinned at its absolute ceiling.
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  Meanwhile, down in the Gulf, Pemex is holding back Maya crude exports to run through
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  their own Olmeca refinery.
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  The heavy market is parched, yet Canadian barrels are stranded by pipeline steel.
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  And look at the upstream drillers.
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  According to Baker Hughes, for the week ending September twenty-fifth,
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  active U.S.
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  crude oil rigs actually ticked up by three to four hundred and fifty-five.
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  Total rigs rose by four to five hundred and ninety-nine.
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  In the Permian, they added one single rig, bringing the basin to two hundred and
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  forty-one.
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  That is not an emergency drilling wave.
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  Producers wait months to confirm whether price spikes will stick before deploying
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  capital.
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  They are not chasing weekend headlines.
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  At the very same time, commercial inventories at Cushing, Oklahoma are sitting right
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  near twenty-two million barrels.
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  That is dangerously close to operational tank bottoms.
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  Domestic refinery runs are humming at ninety-two percent utilization to squeeze out
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  products before October turnarounds begin.
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  When Cushing runs that low, suction pumps risk cavitation, blending gets choppy,
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  and traders who priced storage off paper spreads suddenly discover that the barrels
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  they thought they could easily dispatch are literally trapped in transit.
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  Which brings us straight to the regional bottlenecks out west.
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  Now, let us trace those barrels out of the Rockies and the Northern Plains,
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  because this is where the logistics math gets fascinating.
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  Take Utah's Uinta Basin.
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  Operators there, like Ovintiv, SM Energy, and XCL Resources,
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  are pumping about one hundred and fifty thousand barrels a day of yellow and black
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  wax.
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  It is incredible crude, ultra-low sulfur, commanding a three-dollar premium over WTI
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  at Gulf Coast cat crackers.
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  But you cannot simply throw waxy crude into an ordinary common-carrier pipe,
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  or it turns into a giant candle.
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  Salt Lake City refineries can only run about eighty-five thousand barrels a day
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  ahead of turnarounds, and that eighty-five-mile Uinta Basin Railway project is tied
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  up in federal appeals.
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  So what happens?
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  Producers willingly pay sixteen to eighteen dollars a barrel to load insulated,
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  coiled railcars, because high Gulf margins still make the train pay.
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  Then you head northeast into North Dakota.
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  Bakken output is holding flat at one point two million barrels a day under strict
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  state gas capture rules requiring ninety-five percent compliance.
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  Most folks assume that running crude down the big pipelines all the way to the Gulf
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  Coast automatically yields the highest return.
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  But the numbers do not say that.
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  Modeling from Plainview Energy Analytics shows that moving Bakken crude through the
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  Bridger and Pony Express pipeline corridor delivers a netback of fifty-five dollars
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  and twenty-eight cents at Cushing.
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  By contrast, shipping via the Dakota Access Pipeline, DAPL,
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  down to Nederland nets fifty-four dollars and seventy-five cents.
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  That is a fifty-three cent advantage staying inland at Cushing.
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  That fifty-three cent edge pulls volume south toward Guernsey,
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  Wyoming.
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  Drillers in the Powder River Basin, teams like EOG, Anschutz,
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  and Continental, are also dumping fresh light sweet barrels into eastern Wyoming
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  gathering lines.
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  That drove Guernsey crude to a seventy-five cent premium over Cushing,
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  and an eye-opening one dollar and fifty-five cents above Clearbrook,
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  Minnesota, which sat at minus eighty cents under WTI.
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  Wyoming is sucking in barrels from every direction.
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  But here is the hitch: Guernsey is clogged.
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  East Daley Analytics tracks Pony Express at one hundred percent utilization.
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  That two hundred and thirty thousand barrel per day line, recently acquired by
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  Enbridge in that two point five-five billion dollar Tallgrass deal,
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  is packed full.
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  What about Saddlehorn?
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  Well, the Cheyenne Pipeline brings one hundred and twenty thousand barrels a day
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  into the corridor, but the downstream Cowboy Pipeline connector into Saddlehorn
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  maxes out at ninety-five thousand barrels a day.
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  Plains is working to expand Cowboy to one hundred and twenty-five thousand,
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  but until that work finishes, you have a physical pinch point of twenty-five
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  thousand barrels every single day.
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  So, if you are running a terminal desk this week, do not get hypnotized by
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  ninety-two dollar WTI on your monitor.
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  Watch the nomination cut sheets coming in.
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  If Pony Express cuts your allocation and Cowboy cannot take the overflow,
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  you have two choices: find scarce tank space at Guernsey, or pay the freight penalty
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  and roll barrels onto a railcar.
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  Out here in the physical market, pipe steel writes the rules,
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  and the steel does not care about the headline.