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  • Roger S. Conrad

A Crude Picture: Trends in North American Oil Markets

By Elliott H. Gue on Nov. 11, 2013

Delivering these volumes to the Golden State via a combination of railcars and barges entails significantly higher costs than moving crude oil by pipeline; however, the wide price differential between Brent and many North American benchmarks makes these transportation methods a feasible option.

Aside from improving the flow of oil to markets on the East and West Coast, the potential release valves for the emerging glut of crude oil on the Gulf Coast are few and far between.

US law prohibits the export of crude oil without a special license from the US Dept of Commerce. To date, approvals have only allowed limited shipments to Canada; unless the law changes or regulators start to authorize more export licenses, the glut of crude oil in the Gulf Coast will persist.

In contrast, US law allows for unlimited exports of gasoline, diesel and other refined products. This trade has boomed in recent years: International shipments of refined products through the first eight months of 2013 have increased by 55 percent from the same period five years ago.

The wide price differentials of recent years have prompted some capacity additions, albeit not enough to handle rising volumes of light-sweet crude oil.

MDU Resources (NYSE: MDU) and Aggressive Portfolio holding Calumet Specialty Products Partners LP (NSDQ: CLMT) earlier this year announced plans to build a new diesel refinery in North Dakota to process surging production from the Bakken Shale. Refiners with operations on the Gulf Coast have also announced plans to add capacity to run more condensate and light-sweet crude oil.

However, with the US refinery utilization rate consistently at elevated levels, the scope for organic improvement remains limited. And planned refinery outages for maintenance and upgrades can have a material effect on crude-oil prices.

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    • Elliott H. Gue

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor

    • Roger S. Conrad

      Founder and Chief Analyst: Capitalist Times and Energy & Income Advisor