Crude train activity resumes at Stroud, OK, terminal as Cushing stocks build
Crude train activity resumes at Stroud, OK, terminal as Cushing stocks build
BRIDGET HUNSUCKER, Genscape
CUSHING, Oklahoma -- Following two months without arrivals, there have been four crude trains monitored unloading so far this month at EOG’s Stroud terminal, near Cushing, OK, where market participants are increasingly storing barrels to benefit from West Texas Intermediate’s (WTI) contango price structure. The storage hub has become an attractive market for Bakken crude amid falling oil prices and a tighter price spread between the Brent and West Texas Intermediate benchmarks, sources said.
“With Brent trading very close to WTI, Cushing seems like the best market for Bakken crude now.” RBN Energy analyst, Sandy Fielden, said Jan. 13. “It would be better to send it there by pipeline than rail, but if you have a bunch of rail cars and a terminal, then I guess it makes sense.”
EOG was an early mover in crude-by-rail, sending the first shipment from its Stanley, ND, loading terminal to Stroud in late 2009. EOG began constructing the loading facilities in Stanley, the facilities in Stroud, and the Hawthorn Pipeline, which runs from Stroud to Cushing in the second-quarter of 2009, according to a statement on the company’s website.
Trains of 100 tank-cars each arrived at Stroud on Jan. 4, 7, 10, and 12. The trains were the first monitored at Stroud since Nov. 7, 2014, which was around the time that Tallgrass’ Guernsey-to-Cushing Pony Express Pipeline ramped up and began to pull barrels away from the rail service.
When trains stopped arriving at the terminal in early Nov. 2014, some sources attributed the inactivity to the fact that rail shippers choose to pipe barrels on Tallgrass to Cushing. On Nov. 16, 2014 volumes on the pipeline hit a high of about 210,000 bpd, up from only about 12,000 bpd on Nov. 1, 2014.
The pipeline’s volumes have remained sizable, and were about 181,400 bopd June 12, but crude-by-rail players may now be directing trains toward the Mid-Continent to capture better rail arbitrage economics versus coastal regions, sources said. Arbitrage opportunities between North Dakota and the East and Gulf coasts have shrunk in recent weeks because of the tightening Brent-WTI spread.
The Brent-WTI, a leading indicator of U.S. crude-by-rail economics, was about $0.45/bbl on Jan. 13, tightening from about $4.50/bbl at the start of Nov. In addition, the price of Louisiana Light Sweet (LLS), which competes with Bakken crude along the Gulf Coast, was reported at WTI plus $0.80/bbl for Feb. delivery on Jan. 13.
“The LLS is weak and so is the Brent-WTI spread,” a trader said this week. “With the roll now being big enough to support storage, it makes sense to go [to Cushing] instead of St. James, LA.”
Cowen and Company senior analyst Sam Margolin agreed on Jan. 13, saying that the “increased contango is making Cushing more attractive these days.” It’s possible that Bakken production field prices are at a “material discounts to most hubs including Cushing and Clearbrook,” MN, Margolin added.
Cushing stocks have increased rapidly to 36.24 MMbbl on Jan. 9 from 26.65 MMbbl on Nov. 7, 2014, according to Genscape data. The NYMEX February and March light sweet crude contracts were in about a $0.60/bbl contango at noon on January 13, with February at $45.41/bbl. The NYMEX March contract was about $.70/bbl weaker than April.
“Storage is definitely a play at the moment given the contango in futures,” Fielden said.
But crude may have also been railed to the Cushing market to blend with other grades, another trader said, adding that Cushing is as “good a market as any” for current rail economics, with rail costs to Oklahoma cheaper than to coastal markets.
Taking into account pricing data and rail freight rates for the week ended January 9, the rail-delivered Bakken price at Stroud was $47.81/bbl, the cheapest compared to other U.S. crude-by-rail destination markets, Genscape data showed. The next cheapest Bakken rail-delivered price was at Anacortes, WA, at $49.17/bbl. The Bakken rail-delivered price at St. James was $52.14/bbl and Albany, NY, was $52.42/bbl. The most expensive Bakken rail-delivered price was at Yorktown, VA, at $53.27/bbl.
