Refiners from the United States East Coast are looking to purchase increasing volumes of domestic crude oil from the Gulf coast—as what sources said; the latest twist in the trade flow confusion in the wake of the opening of the Dakota Access pipeline. As most of the major East Coast refiners from the United States profited from railing hundreds of thousands barrels of discounted Bakken crude to their plants daily from 2013 until 2015.
However, as more and more pipelines are built in North Dakota, the discount began to disappear—and so did the rail cars.
In accordance to this event, at least two East Coast refiners respectively known as: Phillips 66 (PSC.N) and Monroe Energy—Delta Air Lines Inc’s subsidiary, are looking to transport more crude by ship from Texas into the Philadelphia area.
The Dakota Access pipeline starts up in May, giving Gulf access to the Bakken shale play, and will likely sap any lingering economic incentive for Bakken-by-rail, which is more expensive, 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.
Last year, about 13 million barrels of crude went from the United States Gulf to the East Coast, which means the East Coast took in of approximately 323 million barrels of imported crude last year. Sources say that costs could range from $2.60 to $3.50 a barrel for a two-week round trip on a United States flagged vessel. That is lower than the peak, because of the number of spare vessels available.
Taking a cargo of Nigerian Bonny light to Philadelphia costs about $1.40 a barrel, as what brokers explained.
Brokers said that bringing United States 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. One added: “It’s about optimizing assets. From Texas, you could bring up Eagle Ford, Permian or even Bakken crude.”
This could guarantee a steady supply of domestic crude, as both Phillips 66 and Monroe Energy have already had United States-flagged Jones act tankers contracted, making crude transferring efficient and effective without difficulties. Phillips 66 and other refines use their tankers to shuffle products to higher margin regions and bring crude to their refineries.