East Coast refiners in US using more Texas crude
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latest twist in a trade flow upheaval in the wake of the opening of the Dakota Access pipeline.The Jones Act should be repealed. The US national security interest would be better served by relying more on domestic production of oil.
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 and Delta Air Lines Inc's 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.
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.
West Africa produces crude that is "gasoline rich," he said, important for East Coast refiners. He said he doubts sending Jones Act tankers makes a lot of sense financially because the spread between global benchmark Brent and U.S. West Texas crude futures is not enough to justify the shift.