Push Me, Pull Me - What's Going On With Bakken Prices? And Are Constraints on the Horizon?

The discount for Bakken crude prices at Clearbrook to WTI at Cushing has been on a rollercoaster in recent weeks, widening from $1.30/bbl at the beginning of September 2018 to over $10/bbl in mid-October and narrowing again most recently. There are several factors at play here. Canadian production has overwhelmed area pipelines and prices are being heavily discounted. These cheap Canadian barrels are creating oversupply issues at markets that Bakken barrels also trade into. On the demand side, Midwestern refiners are in the middle of seasonal turnarounds, reducing the demand for both Bakken and Canadian grades. Meanwhile, Bakken production growth continues to steadily chug along, increasing by over 150 Mb/d since the beginning of the year. And while this recent Bakken price angst is cause for concern, there is a looming bottleneck for pipeline space that could really shake things up sometime next year. Today, we examine the recent price phenomenon, the relationship between Canadian crude differentials and Bakken prices, and why producers should be concerned about future pipeline shortages.

Historically, a major pricing hub for Bakken barrels is the sales point at Clearbrook, MN, accessible by Enbridge’s North Dakota Pipeline system (brown line in Figure 1). From Clearbrook, traders can take barrels further east into Midwest markets. As we discussed in Take My Crude Away, Bakken producers also have a few other options for downstream pipes, including takeaway to Wyoming (and eventually Cushing) via Kinder Morgan’s Double H Pipeline (orange line) and True Companies’ Bridge and Butte systems (light pink line). Energy Transfer Partners provides access to Patoka, IL, and on to the Gulf Coast by way of the Dakota Access Pipeline (DAPL, blue line).

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