Hurricanes in Texas and Florida have contributed to temporary premium pricing for North Dakota Bakken sweet crude oil, Justin Kringstad of the state’s pipeline authority said Friday.
Refineries on the Gulf Coast hit by the storms are seeking to make up for shortages of gasoline and diesel fuel, Kringstad said in a call with reporters to discuss oil and gas production by Minnesota’s western neighbor.
“Bakken runs very well through refineries in order to maximize the yield,” Kringstad explained. “So we’ve seen an uptick in the pricing for those Bakken barrels.”
The energy reporting website Platts recently noted that “the Bakken crude differential in Clearbrook, Minnesota, soared to its highest level in four years … as Midwest US refineries seek to bolster their supplies of light sweet crudes to produce gasoline and diesel in the wake of Hurricane Harvey disruptions and in response to a widening Brent-WTI spread.”
The Brent-WTI spread refers to a comparison of Brent sweet crude oil futures and the futures of West Texas Intermediate (WTI) crude oil.
Kringstad said the price for Bakken oil should stay up “in the near term” and then settle back down.
Oil prices remain depressed by a glut in the world’s oil supply. But the oil production outlook in North Dakota is trending up slowly. It topped a million barrels per day in June and inched up higher in July. July’s preliminary production figure of 1,047,526 barrels per day was slightly more than June’s 1,032,873, according to figures released Friday.
The growth in production was higher than state projections, but the gains were offset by prices that were lower than the state estimated, state Mineral Resources Director Lynn Helms said.
Oil prices are expected to rise in the fourth quarter of 2017 and the first quarter of 2018, Helms noted. If per-barrel prices top $50 as expected, Helms said production of a million barrels a day could become “the new normal.”
“We had talked earlier that there was a pretty good possibility of dropping below a million barrels a day late this year or next year,” Helms said. “But it really looks like the oil price where it’s at, the rig count and the number of [fracking] crews, we can be comfortable about that million-barrel-a-day number.”
The state had 56 drilling rigs in August, down two from July.
All of the current numbers significantly lag the boom in North Dakota’s oil and natural gas production that existed just a few years ago. At that time, before oversupply hit, a million barrels a day was the old normal. North Dakota’s all-time production high for the state was 1.23 million barrels per day in December 2014.
In 2012, the state had 218 rigs drilling. The all-time best oil price for North Dakota sweet crude was $136 per barrel in 2008.
Helms credited recent production limits put in place by OPEC for helping to trim supply and make the market financially viable to drill for more oil in North Dakota.
“In August there was good discipline [in OPEC],” so production cuts of various countries were at or below quotas, Helms said. He noted that in earlier months some OPEC members had not strictly applied the supply restrictions.
By comparison, he said, an OPEC decision to lift production quotas at its next meeting could drive oil prices below $40 a barrel, badly hurting the oil industry.