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REFINERY MARGIN TRACKER: DAPL court order could send Bakken shippers scrambling for alternatives

Highlights

Bakken shippers eye rail as an alternative

Bakken margins stronger on the USAC

Williston spot discount widens

New York — Bakken margins have risen on coastal markets over the past week, but with the fate of the Dakota Access Pipeline (DAPL) in limbo, spot crude trading has been quiet as buyers and sellers sort out alternatives for moving the crude out of North Dakota to US refineries and export markets.

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On July 7 a federal judge denied DAPL pipeline operator Energy Transfer's emergency request for a stay to avoid the shutdown of the 570,000 b/d pipeline by August 5 to allow the company to prepare for a new environmental impact statement that could take as long as a year to produce.

The company has a limited time frame in which to appeal before it is forced to empty the crude from the line. Some analysts give the company a 30% chance of winning the appeal.

Spot Bakken prices have started to react. Bakken Williston barrels were heard traded at a $5.25/b discount to NYMEX WTI on July 7, compared with the $3.80/b discount assessed on July 6, S&P Global Platts assessments show.

In Guernsey, Wyoming, Bakken prices appear to be holding better value, due to access to the Platte and Pony Express pipelines. Bakken Guernsey barrels were heard on June 7 offered at a $2.25/b discount to NYMEX WTI, with bids at a $3.50/b discount. On July 6, Bakken Guernsey was assessed at a $2.35/b discount.

Rail resurgence to the USAC

The likelihood of a DAPL shutdown has the line's shippers scrambling, with some expected to turn back to rail, particularly to the US Atlantic Coast.

On the USAC, Bakken cracking margins averaged $4.01/b for the week ended July 3, up from $3.87/b the week earlier, according to data from S&P Global Platts Analytics.

Sources familiar with crude-by-rail operations said it is entirely feasible to move almost all of North Dakota's production by rail.

Once the main egress for Bakken, rail saw a drop off in volumes with the start-up of the Dakota Access Pipeline, which diverted the crude from the USAC and USWC to the US Gulf Coast and to Midwest refiners.

However, the infrastructure remains intact.

Major Williston Basin rail operator BNSF "is ready to go," said one source familiar with rail operations, noting that the company had completed a rail expansion in the region prior to DAPL's start-up.

"There are a lot of tank cars, a glut of locomotives, and crew" ready to work, he said.

The North Dakota Pipeline Authority's April report estimated production at 1.219 million b/d, of which 841,000 b/d was transported by pipe and 256,000 b/d transported by rail.

April volumes of Midwest crude railed to the USAC averaged 115,200 b/d, according to most recent Energy Information Administration data, well below November 2014's peak of just under 460,000 b/d.

And while rail transport costs exceed pipeline costs, railroads "want the business" and are likely to price transport costs accordingly and be flexible on contract length, said the source.

Market sources say Bakken crude runs have room to increase, notwithstanding the fact that the region's largest refinery – the 335,000 b/d Philadelphia Energy Solutions plant – shut last August.

Sources familiar with refinery operations at Delta Air Lines' 190,000 b/d Trainer, Pennsylvania, said the plant runs about 40,000 b/d of Bakken, a volume which could be easily increased.

Phillips 66's 258,000 b/d Bayway refinery in Linden, New Jersey, takes about one 70,000 b/d unit train a day of Bakken. It also has additional storage capacity from tanks leased from Buckeye's storage facility in nearby Perth Amboy, giving it the ability to bring in more crude for storage.

PBF has always run Bakken at its 182,200 b/d Delaware City, Delaware, refinery, and has its own rail yard to receive the crude, as well as heavy crude from Canada.

On the West Coast, Par Pacific's 40,700 b/d Tacoma, Washington, refinery could benefit from access to more railed Bakken crude, which is trading at $7.43/b discount to local crude benchmark, Alaska North Slope so far in July. Marathon's 119,000 b/d Anacortes, Washington, refinery also has been a traditional user of Bakken, bringing in about 25,000 b/d.

USWC volumes of Midwest railed crude averaged 157,000 b/d in April, EIA data showed. The drop from March's 219,000 b/d is most likely due to reduced run cuts related to the coronavirus pandemic.

Refining margins modeled by Turner Mason & Co. using Platts prices also show a rise in Bakken cracking margins on the USWC. So far, for the week beginning July 6, USWC cracking margins are averaging $7.41/b, compared with the $6.28/b the week earlier.

Midwest crude supply woes

The shutdown of DAPL will cast another blow on some Midwest refiners, who are already seeing light, sweet crude supply tightened by the partial shutdown of Enbridge's Line 5, limiting the amount of from Canada.

Tudor Pickering Holt analyst Matthew Blair estimates that Marathon Petroleum will feel the most pain from any DAPL closure.

Besides holding a 9% stake in the pipeline through its MPLX master limited partnership, the refiner depends on Bakken for about 14% of the crude supplied to its six Midwestern refineries, he wrote in a July 7 research note.

The Midwest cracking margins for Bakken ex-Williston Basin fell from $9.34/b on July 3 to $8.37/b on July 7, Platts Analytics data shows.

Some Midwest refiners are turning to Cushing, Oklahoma, for light, sweet barrels.

On July 6, spot WTI Cushing barrels held a 3 cents/b premium to the NYMEX August crude contract, compared with a 56 cents/b discount July 2, suggesting more crude moving up the 335,000 b/d Ozark pipeline, which runs from Cushing to Patoka, Illinois.

US Atlantic Coast Refining Margin Averages ($/b)

Bonny Light Cracking

Arab Light Cracking

Bakken Crude Cracking

Forties Cracking

Week ending July 03

3.34

2.12

4.01

3.13

Week ending June 26

3.87

2.88

3.87

3.55

Q3 to date

3.61

2.32

4.50

3.39

Q3-19

8.92

5.03

14.36

9.06

Q2-20

2.94

4.47

1.67

3.14

Q1-20

2.56

2.12

8.10

2.86

Source: S&P Global Platts Analytics

US Gulf Coast Refining Margin Averages ($/b)

Arab Light Cracking

Basrah Light Cracking

LLS Cracking

Mars Coking

Week ending July 03

1.65

-2.12

4.40

2.89

Week ending June 26

2.16

-1.85

4.73

3.22

Q3 to date

1.88

-1.86

4.80

3.27

Q3-19

5.39

0.80

11.83

9.26

Q2-20

3.24

-4.06

3.69

2.45

Q1-20

3.05

-4.83

8.31

7.17

Source: S&P Global Platts Analytics

US Midwest Refining Margin Averages ($/b)

Bakken Cracking

WTI Cushing Cracking

Syncrude Cracking

WCS ex-Cushing Coking

Week ending July 03

8.93

6.51

10.52

6.73

Week ending June 26

8.11

6.06

10.42

6.39

Q3 to date

9.17

6.70

10.07

6.59

Q3-19

14.88

13.38

12.31

14.23

Q2-20

3.54

3.13

3.87

2.66

Q1-20

9.27

6.79

7.53

8.02

Source: S&P Global Platts Analytics

US West Coast Refining Margin Averages ($/b)

ANS Cracking

Vasconia Coking

Arab Medium Coking

Napo Coking

Week ending July 03

7.56

10.49

8.12

8.87

Week ending June 26

8.17

11.11

9.48

8.86

Q3 to date

8.05

11.04

8.52

9.08

Q3-19

16.66

21.02

15.74

18.34

Q2-20

8.42

7.08

9.33

8.46

Q1-20

14.28

14.19

14.46

16.12

Source: S&P Global Platts Analytics

Singapore Refining Margin Averages ($/b)

Dubai Cracking

Arab Light Cracking

ESPO Cracking

Arab Light Coking

Week ending July 03

-2.09

0.97

-1.87

0.82

Week ending June 26

-1.90

4.74

-1.98

4.75

Q1 to date

-1.87

-1.20

-1.49

-1.33

Q3-19

3.62

1.08

2.22

0.63

Q2-20

-2.51

3.13

-3.35

2.98

Q1-20

-0.93

-3.86

0.09

-3.20

Source: S&P Global Platts Analytics

ARA Refining Margin Averages ($/b)

WTI MEH Cracking

Bonny Light Cracking

Arab Light Cracking

Urals Cracking

Week ending July 03

0.77

1.99

0.67

-0.72

Week ending June 26

1.12

2.19

3.31

-0.42

Q3 to date

1.16

2.26

-0.82

-0.49

Q3-19

8.52

7.63

6.31

7.30

Q2-20

-1.28

1.20

4.80

0.46

Q1-20

1.26

2.36

3.23

5.28

Source: S&P Global Platts Analytics

Italy Refining Margin Averages ($/b)

Urals Cracking

CPC Blend Cracking

Arab Light Cracking

WTI MEH Cracking

Week ending July 03

-1.06

2.11

0.06

0.29

Week ending June 26

-1.07

2.34

3.15

0.69

Q3 to date

-0.74

2.28

-1.76

0.64

Q3-19

5.57

8.83

4.89

7.72

Q2-20

-1.30

3.01

2.96

-2.98

Q1-20

4.40

6.00

1.92

0.03

Source: S&P Global Platts Analytics