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Northern Oil and Gas, Inc. Message Board

  • lawwater2000 lawwater2000 Feb 13, 2012 10:39 AM Flag

    Price: Hedged at Cushing less cost of delivering to Cushing?

    I would like some help understanding why the Minnesota price is relevant at all. As I understand the hedging transaction, the seller in the WTI futures market agrees either to buy in the futures contract before expiration or to deliver against the contract sold at the time of expiration. If the seller of a contract delivers, the price received has been determined by the original selling price of that contract in the futures market -- except that the seller is responsible for delivering the quantity of oil specified in the contract to the Cushing delivery point, and must pay the cost of transporting the oil to the delivery point, i.e., Cushing. I have read on several message boards that the cost to ship oil from the Williston area to Cushing is about $7 to $10 and that if the seller wants to get a price closer to the Brent price, the seller can ship the oil to Louisiana, paying, of course, the additional cost of shipping there. I suppose such a seller would hedge in the Brent futures market. I would much appreciate knowing if the above is true and, if not, why not. Thanks.

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    • There are at least 94 different contracts and hundreds of different grades, based on specific gravity from 11 degree crude(asphaltum) at the LeBrea Tar Pits, to 75 degree condensates from Granite Wash, available at different delivery points in the US/Canada. Gulf Coast contracts are easy to ship offshore and can be easily swapped for Brent(Bonnie Light) contracts. Refiners are the ultimate buyers who post prices for what they will pay for different contracts for delivery. Europe needs Light Sweet Blends, aka Bonnie Brent Light, to make low polluting fuels. ND Light Blend is a premium contract since it is in the 44 Degree Bonnie Light arena. WTI is 38 degreee light sweet crude blend.
      The refiners and users from Ashpalt Companies to Chemical Companies have men that sit in rooms at computers all day, and buy input stock near their plants. Those contracts have secondary intrinsic value, based on time and quality (futures swaps). WTI 38 contracts are delivered at Cushing, but the trains are going to St. Andrews,LA terminal which can load to ship offshore. Just because the US imports 7 to 8 million barrels per day doesn't mean it doesn't ship lots of crude oil, and refined products. A tanker loaded with Citgo Venz. Heavy, for heavy oil crackers in LA, may leave with LA light for Rotterdam light oil crackers, for example. Those Venz. Heavy contracts were satisfied with maybe ND Light Contacts, that were bought maybe a year ago. It's a back and forth game to see how high they can get the crack spread. There is a winner the crack spread.

      • 1 Reply to bluelivermore
      • Thnks much for your informative response. I do appreciate the full explanation. Perhaps you could answer another question. As a non-operator, I assume that NOG never receives the physical oil from the operator. I also assume that the operator is the marketer of all of the production from a well in which NOG may have a working interest. Is NOG then dependent on the decisions of the operator as to how to transport, where to deliver and the price at which the oil is sold? Thanks again.

10.58Oct 22 4:02 PMEDT

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