ELAM: Oklahoma, meet Minnesota
As any producer in West Texas knows, all crude oil is not created equal. Saudi Sweet Light (no Virginia, there is really no such thing as sweet crude) flows freely and is perhaps the easiest to refine into products. As such, it fetches some of the best prices. Sulfur laden Mayan crude from Mexico is harder to refine and is therefore priced lower than our own West Texas Intermediate.
But there’s a new player in town, yep, another fast gun looking to build a reputation. Cushing, Okla., is the storage depot for West Texas Intermediate but Clearbrook, Minn., is the hub for what is termed Bakken. The huge increases in production and lately the big drop in price for Bakken deserves the attention of Texas producers. So, Cushing, let’s get acquainted with Clearbrook.
The Permian Basin stretches across some 50 counties in West Texas and eastern New Mexico. The Williston Basin spreads across North Dakota, Montana, and Canada’s Saskatchewan and Manitoba provinces.
We are referencing prices from Argus Media. Argus began covering Bakken crude in May 2011.
Trading has grown to some 185,000 barrels per day. Argus in their own words, “captures trade throughout the day” rather than an end of the day price structure.
Production however is now more than 315,000 barrels per day in the Williston Basin. Estimates are for 550,000 barrels per day by 2012.
Meanwhile in South Texas, Eagle Ford shale crude production is on the rise. Information from 2011 for January through November indicates an average daily production of 66,000 barrels. But appreciate this is a huge increase over 2010 when a mere 12,150 barrels per day were produced.
On Tuesday, West Texas Intermediate popped above its 50-day moving average to close at 100.92. It needs to clear 103 to really get going to the upside. But before you put that on a deposit slip, let’s look at Clearbrook pricing.
Bakken hit its high, along with the stock market by the way, last May at $116.52. Last week however Bakken crude dropped from $93 to $72.34. It has now jumped back to $86.49. So, economics triumphs, more supply lowers price.
I find a lot of weblog chatter about Eagle Ford Shale but no price graphs. Apparently there is not a developed spot market for Eagle Ford at this point.
The Energy Service XES closed end fund has recovered with the price of crude oil. But Transocean RIG reversed down this week and Patterson PTEN is not participating at all. Internationally, oil is priced in dollars. Higher dollars mean lower oil prices. The U.S. dollar jumped just as the price of Transocean fell; again, economics is working well.
While much has been written about the difficulty of getting oil around the country without the proposed Keystone Pipeline, oil through arbitrage still manages to slip around.
And, natural gas is at an historic 40 to one ratio to crude oil. Ten to one would be more normal. This week we have news that Japan will continue to shut down nuclear facilities in favor of natural gas. The governor of Puerto Rico wants to shift the island from crude oil to natural gas. Even the White House admits this is not a bad idea. So there is potential for natural-gas prices to rise as a crude-oil substitute.
Finally, remember it’s all one market. Stocks, oil, and gold all tend to trade together. And all are trading near post March 2009 highs now. With more crude coming on stream, a shift in demand to natural gas and a strengthening dollar, one might should be cautious on expecting permanent new highs in crude-oil prices.
