Higher demand for transporting Bakken crude is also proving to be a lifesaver for rail companies, which have experienced a dramatic decline in coal shipment volumes. Demand for rail services from oil companies is so high, in fact, that many are being forced to wait up to nine months to lease rail cars, according to Oppenheimer‘s senior energy analyst Fadel Gheit.
A minor setback for midcontinent refiners
However, more expensive Bakken crude poses a minor issue for midcontinent refiners, which have enjoyed robust margins due to their ability to use it as a feedstock and sell the refined product at much higher prices.
If the price of Bakken crude rises substantially, Tesoro’s refineries in Mandan, N.D., and Anacortes – both heavy users of Bakken crude as feedstock – are likely to see shrinking margins.
Still, even at around $93 a barrel, Bakken crude looks much more attractive to refiners than coastal crude, which trades at Brent-linked prices that makes it about $20 more expensive per barrel. According to a spokesman for Valero Energy Corporation (NYSE:VLO), there is “still incentive to run [Bakken crude].” Accordingly, the San Antonio-based refiner continues to run about 140,000 barrels of Bakken crude per day at its refinery in Memphis, Tenn.
Final thoughts
Overall, growing shipments of Bakken crude via rail and other alternative methods of transport look to be welcome developments. Faced with pipeline infrastructure that has proved woefully insufficient, crude shipments via rail and barge illustrate the resourcefulness of the nation’s energy companies, which are actively seeking ways to reduce costs and boost profits.
Though rising prices for Bakken crude do pose a minor setback to refiners who use it heavily, it’s only an impediment from a relative standpoint. After all, even at its current price, Bakken crude remains incredibly cheap compared to Brent.
In contrast, high demand for shipping it has proved hugely beneficial to U.S. rail companies, especially during a period in which shipments of coal – their main commodity by volume – have fallen markedly. Lastly, Bakken crude shipments are also offering a glimmer of hope to East Coast refiners, many of whom have struggled with shrinking margins over the past year or so.
The Bakken remains one of the most prolific oil plays in North America. With new outlets for its production, be sure to keep a close eye on the region’s oil and gas producers. One of the most compelling growth stories within the Bakken is that of Kodiak Oil & Gas. An oil-focused junior, the company has an ambitious production target. However, before you hitch your horse to this carriage let us help you with your due diligence. To see if Kodiak is currently a buy or sell, check out our new premium report, which comes with a year of timely updates and analysis.
The article Bakken Crude Oil Finds New Outlets originally appeared on Fool.com and is written by Arjun Sreekumar.
Fool contributor Arjun Sreekumar has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
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