The price differential between oil produced in the Bakken region and the oil stored in Cushing, Oklahoma, and on the Gulf Coast is beginning to positively impact shale producers such as Hess Corp., Whiting Petroleum, and Continental Resources, according to The Street.
Oil prices in the United States are generally based on the benchmark quotes of the West Texas Intermediate (WTI) crude being priced at the Cushing storage hub. However, the prices for which crude produced in other regions like the Bakken can vary substantially from the benchmark prices set by the WTI.
The Street reports that the surge of oil production in the Bakken over the last few years, and the need for its pricing to compete with Canadian crude being transported south via pipeline, has caused Bakken crude to be traded at a discount.
Prior to the dramatic decline in oil prices, Bakken crude was sometimes discounted as much as 12 to 15 dollars per barrel below WTI prices. Along with the drop in prices, producers have retreated into the play’s core acreage and has forced smaller producers on the fringes of the formation to cut production drastically. With the slowed production, there is less competition for pipeline capacity and a decreased supply demand, causing the price difference between Bakken and WTI prices to approach equality.
As reported by The Street, despite the persistent oil price slump, the price at which Bakken crude is traded has risen significantly along with the recent oil price rally. As prices climbed from 45 dollars per barrel to around 60 per barrel, the price differential between Bakken crude and WTI crude has recently jumped nearly 30 dollars per barrel. While this is damaging to smaller producers, major players are reaping the benefits, allowing for the expansion of dedicated Bakken operations. To read the original article, click here.