Bakken Clearbrook Prices Surge on Supply Disruptions; DAPL Hearing Looms

March 19, 2021
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Since mid-February, Bakken Clearbrook prices have rallied into positive territory versus WTI for the first time since April 2020. Weather-induced supply disruptions have been the main contributor to the positive Bakken differentials. North Dakota oil production was affected by the frigid temperatures that hammered most of the central U.S. during February.

The surge in price has occurred mainly in the nearby months of the curve, as evidenced by the chart above. Still, only the Apr 2021, May 2021, and Jun 2021 contracts are in positive territory. When supply returns or a court decision is made on the DAPL pipeline, prices could weaken.

Official crude production numbers in the basin are subject to a delay in reporting and can be opaque. Because most drilling is oil-directed in the Bakken, gas flows can sometimes be used as a proxy for real-time oil production. Dry gas production was hovering near 2.3 Bcf/d before falling to 1.85 Bcf/d in mid-February- its lowest since July 2020.

The Largest crude artery out of the Bakken, the Dakota Access Pipeline (DAPL), is facing a possible suspension. A court hearing is scheduled for April 9 that could determine the pipeline’s fate. The removal of DAPL would decrease pipeline takeaway capacity by 570 MBbl/d for the Bakken region, redirecting barrels to leftover space on other outbound pipes and more expensive crude-by-rail. The chart below shows that if the court ruling is in favor of the opposition, the Bakken region will lack enough pipeline capacity needed to move its crude.

The capacity provided by the DAPL pipeline has helped prices stabilize between $1 – $2 behind WTI, except for brief periods of infrastructure disruptions. In the past, the discount for Bakken crude to WTI at Cushing had widened to $5-$20/Bbl when supply in excess of pipeline takeaway capacity was moved by higher-cost rail. If the DAPL pipeline is ordered to empty, Bakken Clearbrook basis prices could retreat to the cost of crude-by-rail, which could cause Clearbrook to trade -$8/Bbl under WTI by our estimates.

Commodity Interest Trading involves risk and, therefore, is not appropriate for all persons; failure to manage commercial risk by engaging in some form of hedging also involves risk. Past performance is not necessarily indicative of future results. There is no guarantee that hedge program objectives will be achieved. Certain information contained in this research may constitute forward-looking terminology, such as “edge,” “advantage,” ‘opportunity,” “believe,” or other variations thereon or comparable terminology. Such statements and opinions are not guarantees of future performance or activities. Neither this trading advisor nor any of its trading principals offer a trading program to clients, nor do they propose guiding or directing a commodity interest account for any client based on any such trading program.

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