The Continued Fall of U.S. Crude Spreads and South Bow and Bridger's New Cushing Pipeline Plan
South Bow and Bridger target the Guernsey-to-Cushing Liberty route as Hormuz supply crushes regional oil prices.
U.S. Regional Crude Prices and Spreads Fall as Hormuz Supply Rebounds
Regional U.S. crude oil prices and pricing spreads to Cushing have narrowed significantly over the last few weeks due to a surge in oil supply escaping the Strait of Hormuz. This massive influx of global crude is flooding an international market already well-supplied for July and August, heavily depressing domestic regional prices. Bakken crude has slipped to a notable $2.58 discount to August WTI Cushing, while light oil at Guernsey flipped to a $1.65 discount for the first time in several months. West Texas Intermediate (WTI) Midland has similarly dropped to a 15-cent discount to Cushing. Crucially, the spread between Cushing and Houston has withered to just 5 cents per barrel, rendering spot market shipments completely uneconomic and challenging the financial viability of even contracted pipeline volumes.
This domestic price slump stems strictly from a drop in export demand rather than a slowdown at domestic refineries, which maintain high utilization rates to combat global refined product shortages. Essentially, the unleashing of trapped Middle Eastern supply is pricing American barrels to stay inland. Early July ship-tracking data from Plainview confirms this drop, showing key U.S. hubs averaging just 3.7 million barrels per day (bpd) in exports during the first five days of the month, down from our 5.6 million bpd estimate for the first five days of June (see table below). While exports can be lumpy and could moderate higher over the course of the month, current prices indicate July export numbers will be materially lower than June.
South Bow and Bridger to Revive Liberty Pipeline Route for New Guernsey to Cushing Project
A recent Reuters report indicates that South Bow and Bridger are planning to jointly develop a new oil pipeline from Guernsey, Wyoming, to Cushing, Oklahoma. The story indicates that according to a JP Morgan research report, the joint venture acquired the rights of way for the project from Tallgrass Energy. These rights originally belonged to the Liberty Pipeline, a pre-COVID pipeline project spearheaded by Phillips 66 and Bridger that was ultimately canceled due to the pandemic. This new development successfully answers questions regarding the “third leg” (orange line in figure below) which will be the final leg to connect South Bow’s previously announced Prairie Connector (yellow line) and Bridger expansion (blue lines) projects to Cushing, Oklahoma.
Historical materials from Phillips 66 highlight that this contemplated pathway follows a distinct route separate from Tallgrass Energy’s existing Pony Express pipeline (pink lines in figure above) asset. Local outreach by Plainview further supports the continuity of this route; interviews with two residents living near the Liberty Pipeline right of way in Eastern Colorado and Western Kansas revealed that the existing land corridors in those areas remain significantly unchanged. Consequently, the new South Bow and Bridger joint venture is highly likely to utilize the same landowners and pre-established right of way agreements originally outlined in 2019 and 2020.
Flow/Transaction Updates and New Assets Under Coverage
Plainview has over 400 assets with crude oil throughput or transactional data on our platform and continues to add more each week. Data for existing assets under coverage are posted as soon as they become available. Below are the assets that were updated this week or newly added to coverage.
