Crude oil coming out of the Bakken shale in North Dakota is shaking up domestic crude pricing. Although pipeline capacity lags dramatically, Bakken crude, which is making accelerated production gains versus Texas, has the potential to service markets beyond the central portion of the country and reduce total U.S. crude imports.
Because of the added expense associated with rail transported crude, prices of Bakken crude fluctuate wildly compared to WTI. Bakken crude sold at a $25/barrel (bbl) discount to WTI in early 2012 and rose to a $5/bbl premium last September, before again being discounted below WTI this winter. So far this year, the gap between Bakken and WTI prices has narrowed, but once again, the Bakken price has risen above the WTI price, albeit modestly.
As an example, the landed cost of Nigerian crude, the leading source of East Coast imports for most of the past two decades, averaged about $117/bbl in 2012. Current WTI pricing is a good $20 below that, and when Bakken crude is on it's game, it has been marketed at $25 below WTI pricing. Imports from Nigeria into the East Coast have fallen a 65% since 2005. The West Coast has yet to see such a shift in crude suppliers as it continues to rely on imports from Saudi Arabia, Ecuador and Iraq. But recent rail shipments from the Bakken to Washington state signal opportunity for West Coast refiners.
Pipeline shipments would be less expensive, but the infrastructure just isn't there at present. Rail loading capacity, by contrast, is much quicker and easier to build than pipeline capacity, and despite the tedious nature of rail movement of domestic crude, this is an attractive alternative given the low price of Bakken crude.
Crude Oil --
May 13 WTI crude currently (10:30amCT) at $92.91 after opening today at $94.50 and immediately jumping off a cliff, free falling more than a dollar. Bears' next target would be support at $91.84. U.S. crude inventories increased 2.7 million barrels week-over to 388.6 mmbbl -- 26.2 mmbbl above the year before, and well above the top end of the five-year average supply. With this robust supply report this week from EIA, expect crude futures to soften as strong inventory numbers will limit upside action.
The U.S. average retail price of regular gasoline decreased four cents from the previous week to $3.65 per gallon as of April 1, 2013, down 30 cents from last year at this time. The U.S. average price has declined 14 cents over the last five weeks.
The national average diesel fuel price decreased one cent to $3.99 per gallon, 15 cents lower than last year at this time. The U.S. average price has decreased 17 cents over the last five weeks.
Farm Diesel moved $0.016 lower in the Inputs Monitor Regional Index to $3.550.
According to EIA, U.S. propane stocks fell 1.1 mmbbl to end at 39.7 mmbbl last week, and are 5.0 mmbbl -- 11.3% -- lower than year-ago. Gulf Coast inventories dropped by 0.6 mmbbl, and Midwest regional inventories declined by 0.4 mmbbl. East Coast stocks dropped by 0.1 mmbbl, while Rocky Mountain/West Coast inventories decreased slightly. Propylene non-fuel-use inventories represented 9.1% of total propane inventories.
LP $0.004 lower to $1.495/gallon on the farm according to Inputs Monitor data.
Distillate supply fell by a surprising 2.3 mmbbl to 113.0 mmbbl -- 22.9 mmbbl below year-ago levels. The delay in the spring warm-up has taxed the distillate supply and while current inventories are still within the five-year average range, stocks are currently walking a fine line at the low end of the average. If the distillate supply falls out of the bottom end of the five-year, farm diesel prices could respond with an uptick, but we expect the distillate supply to begin to make gains back toward the good in the coming weeks.