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Refinery margin tracker: US crude by rail makes a comeback

New York — Crude by rail is making a comeback as North American crude production outpaces takeaway pipeline capacity in the Permian and lower rail costs make Bakken margins attractive to both US Atlantic Coast and US West Coast refiners, an S&P Global Platts margin analysis showed Monday.

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"Crude volumes are picking up in both Canada and the United States (crude by rail does look like it is making a comeback)" Bernstein analyst David Vernon wrote in a recent research note.

Crude by rail volumes from the Bakken to the USAC dwindled to about 75,000 b/d in June 2018, well below the record 445,000 b/d shipped in November 2014, Energy Information Administration data showed. However, they are growing again as US Atlantic Coast cracking margins for North Dakota's Bakken rose to an average of $14.52/b for the week ended September 7, Platts margin data showed, overshadowing those of imported Nigerian Bonny Light, which averaged $11.37/b.

Platts margin data reflects the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.

Volumes of crude moving into the Eddystone train terminal outside of Philadelphia, Pennsylvania, are gaining momentum, with the first train in over a year arriving in August, according to local market sources.

Eddystone, which can supply Delta Air Lines' 190,000 b/d Trainer, Pennsylvania, plant as well as the 310,000 b/d Philadelphia Energy Solutions, can get crude from two rail carriers: Norfolk Southern and CSX.

As rail costs have come down, both Norfolk Southern and CSX showed increased volumes of petroleum, up 25% and 26.4% year on year, respectively, according to company filings for the week ended September 7.

Bakken rail costs have come down considerably to about $7.50/b as railroads cut costs to compete with the Dakota Access Pipeline, which came online in May 2017.

PBF Energy has its own railyard to supply crude by rail to its 182,200 b/d Delaware City, Delaware, refinery and neighboring 160,000 b/d refinery in Paulsboro, New Jersey.

VALERO SAYS MORE WCS MOVING BY RAIL TO USGC

More Canadian crude is also moving out by rail due to pipeline takeaway constraints that have kept the spread between Western Canada Select and WTI wide.

Valero Energy told Barclays analysts last week that it was moving between 30,000 b/d and 40,000 b/d of Canadian heavy oil supply in recent months.

Valero has 1.44 million b/d of crude capacity on the USGC and 256,100 b/d of coking capacity, allowing its heavy crude volumes there to swing between 22% and 34% of capacity, the company's presentation showed.

"To our surprise, management cites Valero's all-in rail cost only at $15/b, about $5/b plus lower than what we have previously heard from the producers," Barclays analyst Paul Cheng wrote.

USGC Western Canada Select coking margins averaged $28.84/b the week ended September 7, compared with weekly average coking margins of $12.97/b, Platts margin data showed.

And more WCS is expected to arrive by rail, according to analysts.

"Reports last week that signed agreements with locomotive operators to move more than 300,000 b/d by December is a clear positive development for Canadian crude differentials and industry," Tudor Pickering Holt analyst Matthew Blair wrote in a research note.

MIDWEST REFINERS HEAD INTO MAJOR TURNAROUNDS, WCS SPREADS WIDEN

A heavy maintenance schedule for the Midwest will increase supplies of Western Canada Select, the mainstay crude for Midwestern cokers, as it weakens the price and widens further the spread between WCS and benchmark WTI.

Midwest WCS coking margins averaged $36.28/b for the week ended September 7, up from the $34.72/b the week earlier.

BP's planned work on its heavy crude unit at its 413,500 b/d Whiting, Indiana, refinery is expected to start in mid-September, trade source said.

Downtime for the unit, which runs only Western Canada Select, is already widening WCS' discount to WTI. On Friday, WCS held a $28.75/b discount, Platts price assessments showed, bringing the weekly discount to an average of $26.54/b for the week.

BP Midstream, BP's sponsored MLP, carried 295,000 b/d of WCS to the Whiting refinery in the second quarter of 2018.

The wider spread will only serve to make it more economical to increase volumes of WCS traveling by rail to the USGC. For the week ended September 7, rail carrier Kansas City Southern saw rail cars carrying petroleum products up 5.8% week on week and 55.6% year on year.

USWC REFINERS UP BAKKEN VOLUMES

Volumes of crude railed to US West Coast refineries increased as volumes to the USAC declined. Bakken crude railed to the USWC averaged 140,000 b/d in June 2018, after reaching a peak volume of 179,000 b/d in March 2018.

USWC Bakken cracking margins averaged $17.72/b the week ended September 7, Platts margin data showed, up from $15.90/b the week earlier, increasing crude flows to the west.

At key Bakken rail company BNSF, carloads of petroleum products rose 3.5% week on week and 35.5% year on year for the week ended September 7, company data showed.

June data from the North Dakota Pipeline Authority showed all railed crude volumes averaged 279,885 b/d. Last week, rigs drilling in the Bakken rose by 1 to 53, according to Baker Hughes rig data.

US Atlantic Coast Refining Margin Averages ($/b) Bakken cracking Bonny Light cracking Arab Light cracking Hibernia cracking
Week ending Aug 3 13.10 12.13 10.84 10.88
Week ending Jul 27 13.99 12.55 12.07 11.46
Q3 to date 11.42 11.40 10.61 10.16
Q3-2017 6.61 12.52 10.42 10.07
Q2-2018 10.83 10.97 8.93 8.16
Q1-2018 6.52 8.21 6.70 5.52
Source: S&P Global Platts; Turner, Mason & Co.
US Gulf Coast Refining Margin Averages ($/b) LLS cracking Mars coking Maya coking WCS coking
Week ending Aug 3 13.69 12.84 14.35 32.37
Week ending Jul 27 14.63 14.06 13.51 30.80
Q3 to date 12.64 12.39 11.71 25.51
Q3-17 11.66 12.81 11.95 12.16
Q2-18 10.80 10.76 14.38 18.57
Q1-18 9.36 9.63 11.08 23.58
Source: S&P Global Platts; Turner, Mason & Co.
US Midwest Refining Margin Averages ($/b) Bakken cracking WTI cracking WTS coking WCS coking
Week ending Aug 3 16.46 13.31 30.83 38.90
Week ending Jul 27 16.97 12.45 29.04 36.90
Q3 to date 14.07 10.66 25.86 31.31
Q3-17 10.72 10.98 12.57 16.01
Q2-18 12.35 10.74 20.26 23.76
Q1-18 8.11 6.27 8.44 27.05
Source: S&P Global Platts; Turner, Mason & Co.
US West Coast Refining Margin Averages ($/b) ANS cracking Mixed Light Swt cracking Escalante coking Oriente coking
Week ending Aug 3 9.26 23.90 11.71 13.62
Week ending Jul 27 8.90 23.77 11.11 12.38
Q3 to date 9.46 24.03 11.66 12.75
Q3-17 11.46 19.95 14.82 16.82
Q2-18 10.69 29.40 14.25 16.65
Q1-18 9.36 22.01 12.91 14.95
Source: S&P Global Platts; Turner, Mason & Co.
Singapore Refining Margin Averages ($/b) Arab Heavy cracking Arab Medium cracking Dubai cracking Qatar Land cracking
Week ending Aug 3 3.20 2.77 6.11 4.55
Week ending Jul 27 3.37 2.74 6.22 4.62
Q3 to date 2.66 2.06 5.44 3.79
Q3-17 5.18 4.67 6.58 5.91
Q2-18 3.42 2.78 6.02 4.33
Q1-18 3.78 3.19 7.11 4.87
Source: S&P Global Platts; Turner, Mason & Co.
ARA Refining Margin Averages ($/b) Arab Light cracking Brent cracking Ekofisk cracking Urals cracking
Week ending Aug 3 8.73 7.93 8.62 9.11
Week ending Jul 27 8.77 7.63 8.29 9.33
Q3 to date 7.20 6.92 7.60 8.09
Q3-17 9.27 7.74 8.30 8.88
Q2-18 6.81 5.97 6.43 7.26
Q1-18 4.75 5.77 6.02 6.38
Source: S&P Global Platts; Turner, Mason & Co.

Source: S&P Global Platts; Turner, Mason & Co.

-- Janet McGurty, janet.mcgurty@spglobal.com

-- Edited by Annie Siebert, newsdesk@spglobal.com