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Crude Spreads, Freight, and the Battle for Inland Barrels · The Gathering Line

• 0:00
  Brent crude futures popped up a dollar eighty five to seventy five eighty five a
• 0:04
  barrel after those drone strikes near Red Sea shipping lanes.
• 0:08
  But if you glance over at North American inland markets, the real story is sitting
• 0:13
  in the physical spreads.
• 0:14
  Western Canadian Select at Hardisty widened sixty cents out to thirteen dollars and
• 0:19
  ten cents under WTI.
• 0:22
  And that is happening even with the Trans Mountain Expansion running at eighty five
• 0:26
  percent capacity.
• 0:27
  You might think, okay, is there a crude bottleneck in Alberta?
• 0:31
  Well, no.
• 0:33
  The unexpected driver is clear down on the US Gulf Coast.
• 0:37
  Gulf Coast Aframax charter rates spiked fifteen percent to forty five thousand
• 0:42
  dollars a day.
• 0:43
  That sudden jump in seaborne freight acts like a direct penalty on heavy barrels
• 0:48
  trying to clear into international markets.
• 0:50
  Meanwhile, WTI moved up a dollar forty to seventy one ninety a barrel.
• 0:55
  The EIA Weekly Petroleum Status Report confirmed a one point four million barrel
• 1:00
  draw at Cushing, down to twenty four point two million barrels.
• 1:04
  That pushed US refinery utilization up one point two percentage points to ninety two
• 1:08
  point four percent.
• 1:10
  Let us re derive that inland mechanism in plain words.
• 1:14
  When Cushing inventories draw down while Gulf Coast export spreads widen,
• 1:19
  inland refiners are essentially forced to bid up local barrels.
• 1:22
  They have to keep those physical volumes from flowing south down pipelines like
• 1:26
  Seaway or Marketlink.
• 1:28
  Having watched Midcontinent physical trading desks during inventory draws over the
• 1:32
  last twenty years, I keep thinking back to 2018.
• 1:36
  Back during those pipeline bottlenecks, physical traders completely mispriced
• 1:40
  similar Cushing draws because they misread takeaway capacity.
• 1:43
  But today, if you look at the recent FERC tariff filings on interstate lines,
• 1:47
  physical barrels are clearly prioritizing long term pipeline commitments over spot
• 1:51
  sales.
• 1:53
  That bring us right to the Guernsey hub in Wyoming.
• 1:56
  Physical Guernsey crude flipped to an eighty five cent per barrel premium over
• 2:00
  Cushing.
• 2:01
  That is a thirty five cent gain over the last twenty four hours alone,
• 2:04
  expanding on the fifty cent premium we saw recently.
• 2:08
  Guernsey is also trading at a two dollar and ten cent premium over Clearbrook.
• 2:12
  The big catalyst here is that Pony Express line space apportionment hit fourteen
• 2:17
  percent this morning.
• 2:18
  As Kinder Morgan progresses on converting the Double H pipeline to NGL service,
• 2:23
  about thirty thousand barrels a day of Bakken crude are being forced off northern
• 2:27
  routes.
• 2:28
  That sudden scramble for takeaway is pushing Guernsey terminal tankage fees up to
• 2:32
  record highs.
• 2:34
  Over in North Dakota, the DMR Director's Cut reported Williston Basin crude
• 2:38
  production holding steady at one point two three million barrels per day,
• 2:43
  with gas capture compliance at ninety five percent.
• 2:46
  Producers like Chord Energy and ConocoPhillips are maintaining minimal crude by rail
• 2:50
  loadings.
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  Why?
• 2:52
  Because rail suffers a three dollar and fifty cent per barrel netback disadvantage
• 2:56
  compared to pipe.
• 2:58
  To re derive rail economics in plain words: unless Bakken rail freight rates drop
• 3:02
  below seven dollars and fifty cents per barrel to the East Coast,
• 3:06
  pipeline tariffs on systems like DAPL and Bridger are going to capture every single
• 3:10
  discretionary barrel.
• 3:12
  Down in the Powder River Basin, operators like Anschutz and EOG Resources are
• 3:16
  keeping steady throughput of two hundred thirty five thousand barrels per day into
• 3:20
  Guernsey via the Iron Horse system.
• 3:23
  And over in Utah's Uinta Basin, the discount on yellow and black waxy crude narrowed
• 3:28
  to two dollars and seventy five cents under WTI as Salt Lake City refiners finish up
• 3:32
  their fall maintenance.
• 3:34
  On the infrastructure front, the legal journey continues.
• 3:37
  Following the Supreme Court and DC Circuit rulings remanding the eighty five mile
• 3:42
  Uinta Basin Railway project back to the Surface Transportation Board,
• 3:45
  producers like Ovintiv and XCL Resources still have to rely entirely on truck to
• 3:50
  rail transload terminals at Price and Carbon County.
• 3:53
  So for now, physical truck logistics remain the only game in town out there.
• 3:58
  Alright, that is the layout of the inland crude grid today.