EBF 301
Global Finance for the Earth, Energy, and Materials Industries

Crude Oil Logistics

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The following mini-lecture traces the flow of crude oil from the wellhead to the refinery using various forms of transportation. We also discuss the two global standards for crude oil, West Texas Intermediate, and Brent North Sea. The major supply/demand districts in the US are presented, as well as supply and demand statistics.

The history of regulation for crude oil and liquids pipelines goes back to the first regulation of the railroads in the 1800s. A fear of a monopoly by the few railroads in existence prompted the US government to form the Interstate Commerce Commission. The body was later given jurisdiction over interstate crude oil pipelines based upon the same monopoly fears. Today, that responsibility lies with the Federal Energy Regulatory Commission (FERC).

Under federal regulations, pipelines must file “just and reasonable” rates and provide access to any shipper requesting space, if available.

Key Learning Points for the Mini-Lecture: Crude Oil Logistics & Refining

While watching the Mini-Lecture, keep in mind the following key points and questions:

  • Wellhead to retail pump infrastructure
  • What are the costs and revenue opportunities on the “value chain”?
  • “West Texas Intermediate” crude oil vs. “Brent North Sea” oil
  • All crude, natural gas, and liquids pipelines in the US are regulated by the federal government.
  • The Federal Energy Regulatory Commission (FERC) replaced the Interstate Commerce Commission as the regulatory body for crude oil pipelines.
    • “Common carrier” status
    • Non-utility vs. natural gas pipeline utility status
  • Rate schedules – “tariffs”
  • What are “PADDs”?
  • Supply & Demand overview

The following video is 17:08 minutes long.

EBF 301 Crude Oil Logistics
Tom Seng - John A. Dutton e-Education Institute

Figure 2 displays price difference between Brent and WTI crude oil. As you can see in this graph, there has been always a price difference between WTI and Brent. Before 2011, this difference was very small and Brent was slightly cheaper than WTI. In 2011 increased domestic light crude oil production along with pipeline and transportation limitations caused the WTI to be traded at lower price with larger gap compared to Brent. Recently infrastructure limitations are decreasing and the difference is becoming smaller again; and WTI can be supplied to the Gulf of Mexico and supply the demand. The green area in this graph indicates the price difference.

Figure 2: Price difference between Brent and WTI crude oil

Source: EIA

Please review the figure 1 and figure 2 in lesson 2 to see the upward trend in oil production and downward trend in oil imports for the same time period.

Crude oil transportation 

Following links provide good resources for the U.S. pipeline infrastructure:

Please go to this link and try to find the Cushing, OK.

More information about tankers can be found here.

Figure 3 is drawn from the EIA data for the U.S. Crude Oil Refinery Receipts by the transportation in 2016. As you can see in these pie charts, pipeline transports the largest portion of domestic and tankers transport the largest portion of foreign crude oil to the refineries.

Figure 3: U.S. Crude Oil Refinery Receipts by the transportation in 2016.

Source of data: EIA