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Bakken crude differentials soar on widening Brent-WTI spread

Houston — Bakken crude differentials for delivery in July rose sharply Wednesday tomulti-month highs, flipping to a premium to the NYMEX WTI calendar-monthaverage amid further widening Brent-WTI crude spreads, with Williston barrelsrising to parity with Clearbrook for the first time.

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Bakken had a very active spot market, with differentials heard going upcontinually throughout the day.

"This is pretty wild," a market source said.

Sources cited the further widening Brent-WTI spread, which rose above$9/b during the day, as the primary driver of the rally, giving the incentiveto ship Bakken barrels south to the US Gulf Coast. S&P Global Platts assessedthe July-delivered crude spread at $9.52/b -- the highest in more than threeyears.

Close to the oil wells in North Dakota, Williston-origin barrels for railtransport were heard traded as high as NYMEX WTI CMA plus 25 cents/b, a steeprise of $2.20/b from Tuesday's assessment. This was the highest differentialsince November 11, when it was assessed at NYMEX front-month WTI CMA plus 35cents/b.

Williston barrels for delivery on the Dakota Access Pipeline were heardtraded as high as NYMEX WTI CMA plus 20 cents/b.

Bakken crude in the Clearbrook, Minnesota, hub that supplies the Midwestmarket, meanwhile, was talked valued at a rare parity with Williston barrels,equivalent to a rise of $1.45/b day on day. This was the first time Willistonbarrels rose to parity with Clearbrook since S&P Global Platts startedassessing the former in April 2014.

Clearbrook barrels typically trade at a premium to Williston barrels toaccount for transportation costs westward, with the spread averaging at$1.14/b so far in June. But the recent slump in the Western Canadian crudemarket, which also supplies the Midwest hub, has limited the rise ofClearbrook crude.

"Clearbrook [is] capped with Canada being weak," a Bakken trader said."How much volume can go out on rail to have the field volume cleared is goingto be interesting."

GUERNSEY TRAILING BEHIND

Bakken differentials in the Rockies region, meanwhile, had a moreconservative rise Wednesday, remaining in the negative territory.

In the Guernsey, Wyoming, hub, Bakken was talked valued at NYMEX WTI CMAminus 65 cents/b, 20 cents higher compared with Tuesday. This put it at an85-cent discount to Williston and Clearbrook barrels, reversing the typicalspreads. Guernsey barrels were last valued lower than Clearbrook on March 7,when it was at a 15-cent discount to its Midwest counterpart.

The Guernsey hub takes a longer route to get to the US Gulf Coast throughthe Cushing, Oklahoma, hub and mostly services the western US. Sources alsosaid that the Rockies hub has more storage capacity and less takeaway, makingit the "weakest link" among the Bakken hubs as of late.

WIDENING BRENT-WTI SPREAD

While the overall crude complex has continued to increase over theprevious few months, the NYMEX WTI futures has been hampered by strongproduction in the US, especially out of the Permian basin.

According to US Energy Information Administration data, crude oilproduction out of the Permian basin has reached an estimated 3.2 million b/d,a notable 1.6 million b/d above the 1.6 million b/d average over the previousfive years.

In addition to the glut of oil coming out of the West Texas regionhampering prices, there is a lack of infrastructure to carry oil from theproduction areas to refineries and ports along the Gulf Coast.

While many investments have been made to bolster the infrastructure inthe area, until the projects are completed, or the unlikely situation of aproduction slowdown, the high spread between Brent and WTI should continue.

--Emmanuel Belostrino, emmanuel.belostrino@spglobal.com

--Tyler Schwartz, tyler.schwartz@spglobal.com

--Laura Huchzermeyer, laura.huchzermeyer@spglobal.com

--Edited by Richard Rubin, richard.rubin@spglobal.com