Stanley – North Dakota production dropped 2.5% in December down to 1.15 million barrels per day, according to the most recent Department of Mineral Resources report.
Crude oil futures (West Texas Intermedite- WTI) jumped to $31/barrel on Wednesday afternoon. Unfortunately, the price for the high quality Bakken crude oil has continued to lag behind, selling for only $18/barrel on Wednesday. The large price gap is adding even more pain to an already beleaguered group of Bakken oil producers.
The fact that Bakken crude is trading at a discount to West Texas Intermediate crude is nothing new, but the current 43% discount is as large as ever. It is very difficult to know exactly where the break even point is for many of the producers in Bakken, but it is safe to assume that it is well north of the current $18/barrel price.
Bakken producers had previously taken advantage of the large spread in international oil prices (Brent-ICE) and domestic oil prices (West Texas Intermediate- WTI). The Bakken crude was shipped by rail to east coast refineries and at a competitive rate compared to the higher priced international crude. The Brent-WTI spread has shrunk dramatically in the last year and east coast refineries are now bringing in more international oil by barge, a cheaper form of transportation than rail.
The Department of Mineral Resources also noted that the rig count dropped to 39 rigs on Wednesday, a number that will continue to fall unless a significant increase in price of Bakken crude is seen.
Side note – Oil futures (West Texas Intermediate- WTI) have been rising this week on rumors that OPEC members will work to curb production increases. This is a long shot however, OPEC has been notorious for blowing right past their self imposed production ceilings. The market is unlikely to rally for an extended period of time without seeing some hard evidence that proves OPEC is actually throttling back production.
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Categories: Local News