Bakken crude on the spot market weakened against West Texas Intermediate as North Dakota production from the state’s portion of the field increased to a record in May.
North Dakota’s Bakken field produced 745,399 barrels of crude a day, according to preliminary data from the state’s Industrial Commission. That’s up 2.4 percent from April and 29 percent from May 2012. Statewide production increased by 2.1 percent to 810,129 barrels a day.
“We finally broke through the 800,000-barrel-a-day barrier,” Lynn Helms, director of the state’s Department of Mineral Resources, said on a conference call. “That’s something we’ve been looking forward to for quite some time.”
Bakken crude priced in Clearbrook, Minnesota, weakened by $2.25 to a discount of $4 a barrel against WTI at 2:11 p.m., according to data compiled by Bloomberg. It’s the widest discount since June 4.
Production could increase more rapidly over the summer months, Helms said. Producers in the Bakken create wells by directionally drilling through underground shale formations and then shooting high pressured bursts of water mixed with sand and chemicals to release the hydrocarbons trapped therein.
While the drilling portion typically only takes 22 days, the hydraulic fracturing process has lengthened to about 92 days as poor weather in the first part of the year slowed trucks carrying water and other materials to the well sites.
The number of drilled wells awaiting fracturing rose by 10 to 500 in May, Helms said. Companies are bringing in extra workers and crews to finish those wells so they can start producing.
“The real focus of the industry at this point in time is to shift personnel to deal with the inventory of unfracked wells,” he said. “It should result in a big surge in production in June, July and August.”
The portion of crude leaving the area by rail decreased to 69 percent in May from 75 percent in April, according to the state Pipeline Authority. About 23 percent of Bakken crude was transported by pipeline, up from 17 percent in April.
Demand to ship oil on Enbridge Inc.’s Line 81, which can carry 210,000 barrels a day from North Dakota into Clearbrook, exceeded capacity for the first time this year for July shipments, Larry Springer, a Houston-based spokesman, said by e-mail.
The gap between WTI at the U.S. storage hub in Cushing, Oklahoma, and Brent has shrunk by 51 percent this month, making it more profitable to move oil to the central U.S. on pipelines than to the coasts via railroad.
“The differential from the Bakken field level to U.S. East Coast-delivered pricing has fallen from a peak of $30 a barrel to $15.56 a barrel” as of July 12, Adam Longson, a New York-based analyst with Morgan Stanley, said in a report. “At current levels, East Coast refiners are turning back to imports, at least on the margin.”