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Mid-Continent Crude Strengthens as Iraq Concerns Bolster Brent

Bakken crude in the Midwest strengthened to the highest level in more than seven weeks as fighting in Iraq bolstered waterborne prices, creating more demand for oil from the middle of the U.S.

Bakken priced at Enbridge Inc.’s Clearbrook, Minnesota, hub advanced 25 cents a barrel at 11:57 a.m. New York time to a discount of $4 below West Texas Intermediate, according to data compiled by Bloomberg. That’s the smallest differential since April 30.

Shipments of oil and petroleum products by rail rose 18 percent in the week of June 13 to 16,130 carloads, the highest level on record, according to the Association of American Railroads.

“It helps explain how we distance ourselves from foreign oil,” Carl Larry, president of Oil Outlooks & Opinions LLC in Houston, said today. “What’s going on in Iraq is not affecting the U.S. as much. That’s their problem, not our problem.”

Brent futures, the benchmark for most global crudes, reached a nine-month high on June 19 as Iraqi forces battled insurgents from the Islamic State in Iraq and the Levant, or ISIL. Companies including Exxon Mobil Corp. and BP Plc have begun to evacuate employees. Production in southern Iraq remains unaffected.

Domestic Production

The premium between Brent and WTI has widened by 47 percent since June 9, and coastal refiners have responded by trying to replace more expensive foreign crude with cheaper domestic oil, including Bakken crude in North Dakota.

Increasing rail shipments also reflect booming U.S. oil production. U.S. output rose 0.2 percent the week ended June 13 to 8.48 million barrels a day, the highest level since 1986, according to the U.S. Energy Information Administration.

“Oil production in U.S. is increasing, and we’re seeing it in places like the Bakken, as well as Wyoming and Colorado,” Andy Lipow, president of Lipow Oil Associates LLC in Houston, said today. “Rail is being used where pipeline access doesn’t exist.”

Meritage Midstream Services II LLC announced today that the first unit train loaded with crude left its Black Thunder Terminal in Wyoming on June 20, carrying 70,000 barrels to an East Coast refinery.

CSX Corp. said in a memorandum that it sends between two and five trains a week carrying more than 23,000 barrels of Bakken crude through Virginia. Plains All American Pipeline LP operates a terminal in Yorktown, Virginia, that can unload 140,000 barrels a day of crude from trains.

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