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Why Midwest Crude Is Piling Up While Cushing Stays Tight · The Gathering Line

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  Four point four million barrels.
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  That's how much crude showed up in the Midwest in a single week,
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  and if you only read the headline number, you'd, you'd miss it completely.
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  Let me show you what I mean.
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  So the government's weekly petroleum report came out today.
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  U.S.
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  commercial crude stocks rose to 426.4 million barrels.
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  That's a build of about three million.
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  Well, 2,969 thousand, if you want to be fussy, and the EIA does warn that totals may
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  not equal the sum of the parts because of independent rounding.
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  Anyway.
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  A three million barrel build sounds like the whole country is swimming in oil.
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  Except it isn't the whole country.
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  The Midwest, that's PADD 2, jumped 4.4 million barrels to 104.1 million.
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  The Gulf Coast, PADD 3, actually drew down by 2.1 million.
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  So picture your fridge.
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  The total milk in your house goes up, but it's all in the garage fridge,
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  and the kitchen one is nearly empty.
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  Total is up.
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  Useful milk, where you need it?
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  Different story.
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  And here's the layer that makes it weird.
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  Prices.
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  My notes have Brent holding above a hundred dollars a barrel,
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  with WTI, the U.S.
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  benchmark, near ninety three.
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  I should flag that the EIA's own table shows WTI at Cushing at 101.44 on September
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  18th, so, um, different days, different sources, treat the exact level loosely.
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  The point is the world price is propped up by Atlantic Basin demand for sweet crude
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  and lingering Red Sea shipping risk.
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  That global price can disguise a local pile up inland.
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  Now the heavy stuff.
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  Western Canadian Select at Hardisty, per my notes, widened thirty five cents in a
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  day to sixteen dollars under WTI.
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  Enbridge's Mainline is apportioned, which just means more crude wants space than the
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  pipe has, so everybody gets a slice.
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  Meanwhile Midwest refiners are starting scheduled fall maintenance.
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  So the barrels arrive and the plants that would eat them are,
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  taking a nap.
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  Add Pemex holding back Maya crude exports to feed commissioning runs at its Dos
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  Bocas refinery, and heavy crude has fewer friendly places to land.
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  And nationally, refiners are already easing off.
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  The four week average for utilization was 96.6 percent, down from 97.5 the week
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  before.
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  Still high!
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  But slipping.
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  Okay, so is this a glut?
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  Hmm, I want to say yes, and then I, I, I stop, because there's a counterweight.
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  Cushing, Oklahoma.
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  The hub where WTI futures settle.
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  My notes have stocks there pinned around twenty two million barrels,
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  which is near what operators call tank bottoms.
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  Think of the last bit of a milkshake and a straw.
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  Pull too hard and you get slurping, air, and in a pump that's called cavitation,
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  which can wreck the pump.
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  So a trader sees paper contracts, deep and liquid, and a pipeline scheduler sees a
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  terminal that can literally not deliver another drop.
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  Oversupplied in the Midwest, thin at the hub.
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  Both at once.
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  That's the trap.
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  So if the Midwest has extra and Cushing is thin, why doesn't the oil just flow to
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  Cushing?
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  Because the road there has a toll booth, and the toll booth is in Wyoming.
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  Let's go out west.
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  Start in Utah's Uinta Basin.
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  The waxy crude there, yellow wax, is prized.
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  My notes say it fetches about three dollars twenty over WTI,
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  because Gulf Coast crackers want it.
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  But Salt Lake City refineries are cutting throughput below 80,000 barrels a day,
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  and an appeals court delay is holding up the 85 mile Uinta Basin Railway.
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  So producers like Ovintiv, SM Energy, and XCL Resources ship it on heated,
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  insulated rail cars at sixteen to eighteen dollars a barrel.
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  Imagine paying that to mail a very, very fragile cake.
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  North Dakota, by contrast, is calm.
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  Output flat at 1.19 million barrels a day, with the state confirming 95.8 percent
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  gas capture.
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  But the Dakota Access Pipeline is running near nameplate, meaning full,
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  so the marginal barrels hop on rail cars headed for Pacific Northwest refineries.
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  And in the middle of all this, somebody's buying pipe.
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  Oil and Gas Journal reports Plains All American will pay about 585 million dollars
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  in cash for Silver Creek, which, quoting them, owns and operates a large integrated
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  crude oil gathering system in the Powder River Basin.
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  My notes say that's about 600 miles of pipe, plus a 49 percent stake in the Powder
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  River Gateway Joint Venture.
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  And separately, RBN Energy reports that Enbridge is buying Tallgrass Energy's crude
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  oil transportation business for 2.55 billion dollars.
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  Same neighborhood, same month.
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  Why the rush?
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  Because gathering routes are shifting.
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  Kinder Morgan is scheduled to convert its 88,000 barrel a day Double H crude
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  pipeline to natural gas liquids service, so producers will need other ways to reach
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  the hubs.
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  Whoever owns the gathering system, owns the on ramp.
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  Here's the payoff, and I love this part.
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  Guernsey, Wyoming.
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  That's the hub where Rockies crude collects before heading to Cushing.
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  Guernsey Sweet jumped ten cents in a day, to an eighty five cent premium over
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  Cushing and two dollars ten over Clearbrook.
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  Wait, a premium at Guernsey?
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  For oil that's, that's stuck?
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  That seems backwards.
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  It isn't, once you see the manifold.
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  Pony Express, the Tallgrass line, carries roughly 230,000 barrels a day from
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  Guernsey to Cushing, per RBN.
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  My notes say it's under heavy apportionment.
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  And there's a 25,000 barrel a day pinch point on the Saddlehorn connector.
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  So barrels without firm space sit in storage, waiting.
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  The price is high because the space is scarce, not because the oil is.
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  Guernsey is the toll booth, and the toll just went up.
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  So, back to that first number.
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  Four point four million barrels in the Midwest isn't a mystery once you look at the
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  map.
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  Oil piles up where refiners are on break and pipes are full,
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  and the hub that sets the price is running on fumes.
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  Total's up, but the milk is in the garage.
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  I'll keep an eye on that garage fridge.