North Dakota oil prices surge and output stalls as pipeline's fate
awaited
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[February 10, 2021] By
Laila Kearney and Devika Krishna Kumar
(Reuters) - Crude prices in North Dakota's
Bakken shale region have surged to their highest levels in about six
months as producers in the region rein in output and amid doubt over the
fate of the Dakota Access Pipeline, the main artery running oil out of
the region.
North Dakota is the second only to Texas in terms of U.S. oil producing
states, with about 1.2 million barrels per day (bpd) of output. Harsh
weather in the region is restraining production and well completion,
which had already been hampered by poor demand in 2020 caused by
coronavirus.
Concern about how U.S. President Joe Biden's administration will handle
the Dakota Access Pipeline (DAPL), which can transport more than 550,000
bpd out of the Bakken, is also boosting prices.
The possibility that the line could be shut down is prompting some
producers to ask for higher premiums for their oil, fearing buyers may
renege on agreements, dealers said.
Crude output in North Dakota is still about 20% lower than the historic
high of 1.5 million bpd hit in late 2019. While production from wells
more than one year old has recovered, output from newer wells has not,
because of a lower rate of completions.
Bakken crude in Clearbrook, Minnesota strengthened to trade just 35
cents under benchmark futures on Tuesday, the strongest since early
August, dealers said.
The state's rig count has been flat at around 11 since October,
according to Baker Hughes data. Output is expected to slide by nearly
20,000 bpd, the biggest decline since May, to about 1.2 million bpd in
February, according to the U.S. Energy Information Administration.
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Prices have risen in part due to the frigid temperatures that have plunged below
0 degrees Fahrenheit in recent days. Cold weather can cause equipment to freeze
and cut production further, traders said.
Meanwhile, DAPL has been embroiled in legal battles over the past five years,
and faces new threats from the Biden administration. The latter has already
taken several steps to restrict new oil and gas development, though it has not
yet tried to shut a pipeline currently in operation.
DAPL's operator, Energy Transfer, is arguing in court that the line should be
kept open even as the U.S. Army Corps of Engineers undertakes a new review of
the impact of the line's passage under Lake Oahe, a key source of water for
indigenous communities in the Dakotas.
"The barrels would still move by alternative means" if DAPL is shut during the
review, Shirin Lakhani at Rapidan Energy Group, an energy consultancy in
Bethesda, Maryland, said.
"This is more than enough to absorb the remaining barrels displaced by DAPL in
the near-term, but it would add $5-$10 to transportation costs."
A hearing scheduled for Wednesday in the U.S. District Court of the District of
Columbia was postponed until April at the request of the Army Corps, the court
said on Tuesday.
The court, which threw out DAPL's permit to cross Lake Oahe, had asked the Corps
for an update on what it intends to do about the pipeline.
(Reporting by Devika Krishna Kumar in New York; Editing by Kenneth Maxwell)
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