REFINERY MARGIN TRACKER: USAC refiners see higher Bakken margins

New York — Better margins have US Atlantic Coast refiners buying more Bakken, as exports of the North Dakota crude appear to have tapered off and the grade's discount widened, an analysis from S&P Global Platts showed June 15..

The USAC cracking margin for Bakken averaged $2.84/b for the week ended June 12, compared with the 34 cents/b the week earlier, S&P Global Platts Analytics data showed.

So far in the second quarter, USAC Bakken cracking margins are averaging $1.10/b, well below the $14.13/b in Q2 2019.

Weaker margins seen early in the second quarter were attributed to higher export demand for Bakken, particularly into China, which increased the crude's value.

Bakken's differential to WTI ex-Clearbrook rose to a 55 cent/b premium on average over May, Platts data shows, up from minus $9/b in April. At that time, the relatively cheap Bakken was particularly attractive to China as it looked to fix May barrels in preparation for the restart of its refineries shut by the coronavirus pandemic.

In May, China bought "unprecedented imports" which "augmented crude stock build in a big way," according to Platts Analytics.

This is confirmed by China's General Administration of Customs data which put the country's crude imports at a record high 11.34 million b/d in May.

Bakken exports seen dropping as spread narrows

Bakken comprised about 65,000 b/d of China's total May imports, according to Kpler, commodity ship tracking data. But other countries – like Belarus and the UK – also took advantage of the good economics to import the crude.

Bakken export economics were helped by the 570,000 b/d Dakota Access Pipeline, which carries crude from North Dakota's Williston Basin to Patoka, Illinois, where it connects to the ETCO pipeline to carry it to Houston and USGC ports.

But Bakken production has fallen below 1 million b/d, and this has kept differentials strong, holding around WTI minus $2/b over June-to-date, keeping export economics in check.

USAC refiners depend on rail to get Bakken to their plants, which is a more expensive transport method than pipeline and waterborne vessel.

About 136,000 b/d of crude moved from the Midwest to the USAC in March, Energy Information Administration data showed. Phillips 66's Bayway refinery uses Bakken but Delta Air Lines' Trainer, Pennsylvania, refinery and PBF's Delaware City, Delaware, plant are the two main transporters of Bakken into the USAC, market sources said. .

However, sources familiar with crude by rail operations along the USAC say they expect June production of Bakken crude to be higher than current production of about 950,000 b/d. This in turn will widen the spread between WTI and Bakken in July.

"Production will be up in June. The spread between June and July will widen," one source said, without providing estimates of the rise in production volume.

"It will all come down to transportation costs," he added.

However, the USAC Bakken resurgence could be short-lived.

Wider spreads could also reignite the export market, which could pull Bakken barrels away from the USAC, he added, eating into local USAC margins