July 6, 2020 / 10:28 PM / a month ago

U.S. Midwest products prices due to rise from Dakota Access pipeline shutdown

NEW YORK, July 6 (Reuters) - Prices for gasoline and diesel in the U.S. Midwest could rise in the coming months, market participants said, because of a U.S. court ruling on Monday that ordered the largest pipeline from the North Dakota shale oil fields to be shut within a month.

The line is the primary route for crude produced in the United States' second-largest shale patch in the Bakken, and the oil is a staple for some refineries supplying the city of Chicago and the Midwest.

The closure of Energy Transfer's 570,000 barrel-per-day (bpd) Dakota Access oil pipeline (DAPL) will drive up the transport cost of crude to the refiners, or force them to pay for alternative supply from elsewhere. That will increase the cost of the fuel they produce.

"There could be a big problem in the Chicago market," said Sandy Fielden, director of oil and products research at Morningstar in Austin, Texas.

"Refiners having to pay more because they're scrambling to find crude will translate into higher products prices."

Crude supply in the Midwest has already seen constraints this year from a court ruling that said Canadian pipeline operator Enbridge Inc had to halt operations for its Line 5. The line carries crude to refineries in states such as Michigan and Ohio.

With five midcontinent refineries, Marathon Petroleum is the independent refiner that is most exposed to the pipeline shutdown, said Matthew Blair, analyst at Tudor, Pickering & Holt.

"Bakken crude oil continues to be an important component of the Midwest crude slate, and as the only direct crude oil transportation service for Bakken crude to the storage hub at Patoka, Illinois, DAPL is a significant logistics asset for Midwest refineries," said Marathon spokesman Jamal Kheiry.

Marathon has other alternatives for supply because it sources crude from many different pipelines, Kheiry added.

Companies that have access to crude supplied by rail are likely to benefit, such as Par Pacific Holdings and PBF Energy, TPH's Blair said.

"Production of crude oil is going to be landlocked in North Dakota," Fielden said. "It's going to be congested and that's going to cause discounts in the price of Bakken crude to WTI." (Writing by Stephanie Kelly, reporting by Stephanie Kelly, Laura Sanicola and Jessica Resnick-Ault in New York; additional reporting by Liz Hampton Editing by Simon Webb and Sonya Hepinstall)

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