Bakken Oil Prices May Drop Further On Capacity Constraints

It’s not only the Permian that is suffering pipeline capacity constraints while oil production is soaring—production in the Bakken in North Dakota has been steadily rising to records while takeaway capacity dwindles, and crude-by-rail offers few options during the coming cold winter months.

Crude oil prices in the Bakken, which have already weakened over the past month with a lot of U.S. refineries out for maintenance, could further slip going forward because production continues to rise while the crude could freeze on the crude-by-rail in cold winters, executives and analysts tell Reuters.

According to the latest available EIA data, North Dakota’s field oil production of crude oil has been rising this year to reach a record 1.279 million bpd in August, above the previous highs from the end of December 2014, just when the oil prices started to crash. The Bakken production continues to grow with over 1.34 million bpd in October and further rises expected in November.

Soaring production, however, has started to outpace the pipeline capacity in the region, which is 1.25 million bpd, Reuters reports, citing data from market intelligence firm Genscape.

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North Dakota’s Williston Sweet and Williston Sour traded at $43.00 and $35.77 a barrel, respectively as of November 8, with a $15-20 discount to WTI. According to data from S&P Global Platts, the average Williston Basin discount was $2.75 a barrel in September, and then fell to $8.45 a barrel in October, when more than 800,000 bpd of refining capacity in the Midwest was offline for maintenance last month. So far in November through November 12, the Bakken Williston discount has averaged around $17 a barrel to WTI.

Now that refineries are returning from maintenance, it will offer some relief to the North Dakota oil prices, but growing production and the coming winter may further depress the prices, especially if the winter disrupts rail loadings.

“Winter weather makes crude-by-rail operations much more difficult. You have stuff freeze up, especially in North Dakota,” John Zanner, crude analyst at RBN Energy, told Reuters.

By Tsvetana Paraskova for Oilprice.com

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