Continental Resources oil sale to China complex

The lower price for West Texas Intermediate against Brent, which BofA--Merrill Lynch said made U.S. crude oil attractive on the open market, shouldn't exist, CEO Hamm said.
By Daniel J. Graeber  |  Oct. 18, 2017 at 7:04 AM
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Oct. 18 (UPI) -- The head Continental Resources, Harold Hamm, said the sale of North Dakota oil to China was the "new normal," through the move is complex, an analyst said.

Continental said late Tuesday it sold 1 million barrels of oil from the Bakken shale basin to a Houston-based trading company, which intends to send the oil to China. Continental said daily sales of 33,500 barrels of oil per day would take place next month at the U.S. oil storage hub in Cushing, Okla., and the trader would then plan to put that on tankers at a Texas port for exports to China.

"This is a historic day for Continental and begins a new chapter in our long-term strategy to establish multiple international markets for American light sweet oil," Hamm said in a statement.

Bakken crude oil could make its way to the market through the Dakota Access pipeline, which would be the more straightforward route. The DAPL artery runs from North Dakota to a hub in Illinois and then on to southern U.S. ports.

Sandy Fielden, the director of research, commodities and energy at Morningstar, told UPI that selling Bakken oil directly from Cushing, which is what Continental said it was doing, is intricate because of the dense network of pipelines running to the Oklahoma storage hub.

"This is a more complicated approach and a producer would look for a premium to do it versus just sending any old co-mingled barrels out from Cushing," he said. "Bakken barrels are attractive to refiners because they produce more diesel -- something a Chinese refiner would find more appealing."

The four-week moving average for U.S. crude oil exports for the week ending Oct. 6 was 1.4 million barrels per day, nearly three times the amount from the same period last year. With a ban on crude oil overturned by former President Barack Obama, Hamm said to expect the trend to continue.

"This new normal was created by the American shale energy revolution and the lifting of the 1977 crude oil export ban," he said.

With the ban on the line in 2015, a report from RBC Capital Markets said that, in terms of oil prices, U.S. crude oil would continue to trade lower than the global benchmark Brent because of transport costs and infrastructure constraints. Last week, Bank of America-Merrill Lynch said the spread, or difference, between West Texas Intermediate, the U.S. benchmark for the price of oil, and Brent, the global benchmark, made U.S. crude oil competitive on the open market.

Brent held a $6.26 per barrel premium over WTI in early Wednesday trading. Hamm said that spread shouldn't exist.

"Modern modes of transport in the crude oil sector today eliminate price disparities between markets and allow free markets to work," he said.

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