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US crude Bakken in Midwest reaches four-year high on strong refiner demand

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Platts Jet Fuel

US crude Bakken in Midwest reaches four-year high on strong refiner demand

Houston — The Bakken crude differential in Clearbrook, Minnesota, soared to its highest level in four years during Wednesday trading as Midwest US refineries seek to bolster their supplies of light sweet crudes to produce gasoline and diesel in the wake of Hurricane Harvey disruptions and in response to a widening Brent-WTI spread.

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Bakken at the Midwest hub was heard traded early at a $2.05/b premium to the calendar-month average of the front-month NYMEX light sweet crude futures contract (WTI CMA). It was also heard talked at a $2.20/b and $2.25/b premium to WTI CMA and offered as high as WTI CMA plus $7/b.

The Clearbrook differential was last assessed higher on June 17, 2013 at WTI CMA plus $2.30/b.

"It's really competitive," one regional crude trader said.



The Bakken crude differential at North Dakota terminals also reached positive territory for the first time since S&P Global Platts began assessing it in 2015. A trade at the Beaver Lodge, North Dakota, hub was heard Wednesday at a 35 cents/b premium to the WTI CMA.

Prices are spiking too for Canadian sweet grades, such as Syncrude Sweet Premium, which was heard to have traded Wednesday at a $2.45/b premium to the WTI CMA, up 25 cents/b from where it traded Tuesday afternoon. The SSP differential has jumped $1.80/b since Harvey made landfall August 25 and is currently at a nearly five-month high.

Market participants said a combination of factors, including refinery disruptions in the wake of Harvey, as well as a widening spread between Brent and WTI has helped contribute to the soaring differentials for light sweet crude grades.

Midwest refineries, which compete to purchase Bakken crudes at the Clearbrook hub, are taking advantage of higher margins due to Harvey disrupting Gulf Coast refinery operations, crude flows and refined products production.

The Bakken Midwest cracking netback margin has risen as much as $12/b on Harvey. The cracking netback margin for Bakken crude at Midwest refineries was $9/b on August 23, increased to $20.99/b by September 1, before easing back to $18.09/b Tuesday, according to S&P Global Platts data.

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

A wide spread between Brent and WTI also is help bolster prices, one trader said.

It is "no surprise," the trader said in reaction to the jump in prices. "Brent/WTI is trumping supply fundamentals at the moment."

The spread Brent-WTI spread has climbed in recent weeks, reaching over a $5/b difference at times. The 30-day average spread between the two crude benchmarks was $3.82/b in August, compared with an average of $2.42/b in July.

Bakken is typically a 42.3 API, 0.12% sulfur crude, compared with SSP at 32 API and 0.19% sulfur. Bakken typically boasts a 28% yield of naphtha, 12% jet fuel, 21% diesel/heating oil and 20% heavy gasoil. SSP produces more heavy end products. SSP typically has a 15% yield of naphtha, 12% jet, 26% diesel and 36% heavy gasoil, according to Platts assay data.

Midwest gasoline deliveries into Tulsa, Oklahoma, have been reversed and shipped to Dallas on the Magellan pipeline system to serve shortages there.

The Dallas and Fort Worth markets saw lines at some gas stations and empty tanks at others as late as Tuesday, local media reported. Shipments from Houston into Dallas resumed this week, taking some of the pressure off Oklahoma refineries as a supply source for North Texas.

Benchmark suboctane FOB Tulsa has fallen as a result. It was heard traded at the NYMEX October RBOB futures contract plus 7.25 cents/gal early Wednesday afternoon, compared with an assessment of NYMEX October RBOB plus 14 cents/gal September 1. That is despite the product being light on the offer side.

Premium suboctane also has given up some of its edge on regular gasoline in the Midwest cash market.

Premium suboctane at Tulsa fell Tuesday from a 22-cent premium to low-octane product to a 21.25-cent premium. The higher-octane gasoline briefly experienced a pull last week as regular fuel ran out at some pumps, then gave back those gains this week.

And the differential for Group 3 ULSD, also known as X-grade, rose from NYMEX ULSD futures plus 1.80 cents/gal on August 23 to the futures contract plus 7.5 cents/gal on August 31, before slowly declining since. It was assessed at the futures contract plus 5.25 cents/gal Tuesday and talked at plus 4.75 cents/gal around midday CDT (1700 GMT) Wednesday.

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

--John-Laurent Tronche, john-laurent.tronche@spglobal.com

--Jeff Bair, jeffrey.bair@spglobal.com

--Matthew Kohlman, matthew.kohlman@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com