Extract from crude oil:
US production for the remainder of the year has been called into question as Haliburton and Schlumberger have discussed slowdowns on the horizon, due to takeaway/processing constraints as well as issues with well performance, which appears to be driven by spacing and the increased amount of parent–child wells being drilled. While earnings season is still unfolding, so far producers are keeping the focus on areas of growth, including the Powder River Basin and SCOOP/STACK, but mostly on the Bakken. Bakken output continues to increase, up by 0.12 mb/d since the start of the year to 1.3 mb/d on our estimates for September. At the same time, Bakken differentials have come under immense pressure, with Clearbrook closing as low as -$14.00 vs WTI CMA on 30 October. While some of this pressure is coming from increased production of light sweet and synthetic crude from Canada, as well as difficulties in sourcing railcars (see E-mail alert: Canadian crude prices falling below producer breakevens will force production growth to slow, 15 October 2018), the future of infrastructure in the basin is a growing concern. ETP mentioned in its Q2 18 earnings call that DAPL was flowing around 0.5 mb/d and that an expansion was under review. Indeed, ETP launched an open season for an additional 45 thousand b/d, bringing nameplate capacity to 0.57 mb/d. Kinder Morgan was careful not to provide any detail when asked about new capacity but noted that “there are some projects that we’re looking at to take additional volumes south to Cushing”, which could indicate an expansion on their Double H pipeline via pump work. The pipeline runs from the Bakken down to Guernsey, where it connects to the Pony Express pipeline into Cushing. Tallgrass has also announced that it will expand Pony Express, from 0.32 mb/d to 0.40 mb/d, and that it could be completed by year-end. Continental Resources mentioned that it was confident in multiple projects expanding pipeline capacity out of the Bakken, both through expansions as well as new projects and alluded to three projects (or timeframes of expansions) from now through the end of 2019. However, in the near term, with production rising rapidly, takeaway constraints are a rising headache, especially with a shortage of railcars; so we expect Bakken differentials to continue to remain weak through the next few months, barring any winter shut-ins related to freeze-offs.
Extract from oil products:
US gasoline stocks fell by 3.2 mb w/w to 226.2 mb, with significant draws in PADDs 1 (-3.1 mb) and 2 (-2.5 mb). Although gasoline stocks in the US have fallen by 10 mb since 12 October, they were still higher y/y by 13.3 mb. The arbitrage along the Colonial pipeline from the USGC to USEC is shut for RBOB and CBOB, while line 1 space for gasoline retreated to negative values after briefly trading positive on 24 October. Midcon regional prices have been gaining strength, however, as the market prepares for the transition to higher RVP winter grade gasoline starting on 1 November. Reports of a disruption at the 0.19 mb/d Valero Memphis refinery pushed Chicago gasoline prices higher. The inter-regional spread between USGC and Chicago remains well above the cost of shipping, leaving the arbitrage along the Explorer pipeline open. US regular gasoline prices were 32 cents higher y/y at $2.81 per gallon for the week to 29 October.