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A Perfect Storm in the Bakken. Why did crude oil prices crash at Clearbrook and Guernsey?

In the first week of this month, crude oil prices in the Bakken crashed.   We talked about the development here in Back to the Future – What happened to Bakken and Canadian Crude Prices?  At one point, the Bakken was trading $45/bbl under Brent.  It is not over yet.  Prices at Clearbrook, MN are still $26/Bbl under Brent.  Was it just a rogue wave?  What can we learn from this market event?  And how can we recognize the onset of similar disruptions in the future?

For the reader who may not be familiar with the geography of Bakken crude flows, let’s look at the pipeline network.  There are two – and only two -- ways out of ‘Dodge’, so to speak.  See the map below.  Crude oil moves east through Clearbrook, Minnesota and then south to the Midwest refinery centers.  Or it moves south to Guernsey, Wyoming, then to Rockies refineries and to those same Midwest refinery centers. 

Those two trading hubs, Clearbrook and Guernsey are the primary gateways out of the Bakken and the Rockies.  In both cases, Bakken and Rockies crude production competes for pipeline capacity with Canadian crude which moves in those same pipelines to the same refinery centers. 

This is a graph of the differential between Bakken crudes at Clearbrook and Guernsey versus Brent.    Back in January, prices at those points were rocking along about $15-16/bbl under Brent, not bad when you consider TI [1] was $10/bbl under Brent.  But all of a sudden, things came apart.  Bakken crude at those two trading hubs dropped down to almost $45/bbl below Brent, and it happened almost overnight – all in the first four days of this month.

Bakken producers, most of whom sell their crude at Clearbrook and Guernsey or at prices related to those two points were shocked, mad or just freaked out.  Not a fun fact to explain to the boss.

Like you always see with one of these big price moves, there were a lot of things going on at the same time.  In the global market, the Iranian nuke thing was pushing prices up – so Brent was increasing.  TI at Cushing was starting to move up, but the delay of the Seaway reversal to June started to weigh on TI prices, and the differential versus Brent started to widen from the $10-$11 range back to the $17-$18 range.   That gets us to the Bakken, and there we had a number of factors converge on the market -

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