Analysis: As Mississippi oil barge arbitrage window shuts, another opens

Fri Aug 23, 2013 1:11am EDT
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By Anna Louie Sussman

NEW YORK (Reuters) - The brisk flow of oil barges shipping crude oil down the Mississippi has slowed to a trickle this summer, curbed by the vanishing gap in prices between inland and coastal prices. Yet the barge market has barely lost a step.

Now, instead of moving a glut of North Dakota crude out of Oklahoma or St. Louis, refiners and traders have redeployed their nimble fleet to the inland waterway linking southern Texas ports to Gulf of Mexico refineries, tapping into cheap barrels of Eagle Ford shale, officials say.

The small shallow-draft Port of Victoria, just 30 miles south of the Texas shale oil patch, loaded river-going barges with nearly 55,000 barrels per day (bpd) of Eagle Ford crude last month, more than double January's rate.

Meanwhile, business at the port of Catoosa, Oklahoma, a 45-minute drive from the storage hub of Cushing, slowed to just 4,300 bpd in June, one-third the norm earlier in the year.

The shift in flows is the latest turn in the rapidly evolving North American oil trading landscape, where arbitrage opportunities regularly surface, only to vanish months later, as the market works out the logistical kinks of moving fast-rising shale production to willing refiners.

The barge trade took off two years ago, as a lack of pipeline capacity to pump surging North Dakota and Canada oil output to Gulf Coast refineries forced traders to turn to alternate, more costly means of transport: barges, trucks and trains.

The nation's fleet of over 3,000 inland barges, each capable of hauling between 10,000 and 30,000 barrels of crude, were pressed into service shipping oil south along the Mississippi, or along other Midwest waterways, to the Gulf Coast, lifting day rates and boosting revenues for barge owners like Kirby (KEX.N: Quote) and American Commercial Lines.

That traffic has collapsed since May as the gap between benchmark U.S. crude in Cushing, Oklahoma, and global marker Brent narrowed this summer to parity. New pipeline capacity drained those Midwestern inventories, erasing the profits companies could make barging oil to the Gulf Coast.   Continued...