Editorial: Gluts & Consequences

How the Bakken boom is altering the petroleum market

Published in CSP Daily News

By  Steve Holtz, Online News Director & Beverage Editor

Steve Holtz

CHARLOTTE, N.C. -- I'm no oil expert--far from it--but having just sat through three days of analysis on crude-oil and petroleum trends at SIGMA's Annual Meeting, it is clear that the United States is in the midst of a remarkable shift in its supply fundamentals.

I couldn't get technical about this if I tried, so to state it simply: The glut of light crude oil coming from the Bakken formation in and around North Dakota has literally changed the direction in which oil and refined fuels are flowing in the United States. And that can't happen without some consequences to the system.

For the first time, the United States is producing more crude oil than it is importing. That's great for the refiners in the Gulf Coast, where the oil glut is turning into a construction glut as refiners race to expand their facilities--some for the first time in years.

That's also crummy news for East Coast refiners, who rely on imported crude oil for their supply.

The result is, the East Coast is strapped for petroleum and diesel supply even while the Gulf Coast is looking for ways to offload its glut of supply. So far, much of it is being shipped overseas, making the U.S. a net exporter of refined fuels for the first time.

So why not send the Gulf Coast's glut to fill the East Coast's need?

Two short answers: politics and infrastructure.

1.) Legally, Gulf Coast supply cannot be shipped to the East Coast; it has to be destined for an international port.

2.) The Colonial Pipeline, the seemingly most obvious method of transport, can't handle the volume. "You can't supply New York from the Gulf Coast," said SIGMA speaker Daniel Massey, president of Argus Media Inc. "The pipeline is full."

These elements are affecting other regions of the country, as well. I won't pretend to understand or explain all of them. But the bottom line is: The oil industry is going through a major change that will mean growing pains for marketers and retailers for months and possibly years to come.

I'd love to hear how or if all of this has affected you thus far. Please email me your stories at sholtz@cspnet.com.

By Steve Holtz, Online News Director & Beverage Editor
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