East Coast refiners eye Texas oil as North Dakota alternative
By Catherine Ngai and Jarrett Renshaw
NEW YORK (Reuters) - U.S. East Coast refiners are looking to buy increasing volumes of domestic crude oil from the Gulf Coast, two sources said, the latest twist in a trade flow upheaval in the wake of the opening of the Dakota Access pipeline.
Major U.S. East Coast refiners profited from railing hundreds of thousands of barrels of discounted Bakken crude to their plants daily from 2013 until 2015. But as more and more pipelines were built in North Dakota, the discount began to disappear, and so did the rail cars.
Now, at least two East Coast refiners, Phillips 66 (PSX.N: Quote) and Delta Air Lines Inc's (DAL.N: Quote) subsidiary Monroe Energy, are looking to move more crude by ship from Texas into the Philadelphia area. The Dakota Access pipeline starts up in May, giving the Gulf access to the Bakken shale play, and will likely sap any lingering economic incentive for Bakken-by-rail, which is more expensive.
This option is more expensive than oil imported to the East Coast, typically from Nigeria. Analysts and traders expected that once the Dakota line came into service, East Coast and West Coast refiners would rely on foreign barrels.
In 2016, 13 million barrels of crude went from the U.S. Gulf to the East Coast, according to the U.S. Energy Information Administration. By comparison, the East Coast took in 323 million barrels of imported crude last year.
Shipping sources say that costs could range between $2.60 to $3.50 a barrel for the two-week round trip on a U.S. flagged vessel. That is lower than the peak, brokers said, because a number of spare vessels are available. Taking a cargo of Nigerian Bonny Light to Philadelphia costs about $1.40 a barrel, brokers said.
Brokers interviewed said bringing U.S. oil via tanker to the East Coast gives refiners access to a variety of crude grades available in Texas, where most U.S. oil ends up now.
"It's about optimizing assets. From Texas, you could bring up Eagle Ford, Permian or even Bakken crude," said one source. Continued...