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

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 that ordered the largest pipeline from the North Dakota shale oil fields to be shut within a month.

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.

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.

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.”

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