North Dakota oil fetched high premium in May for first time 40 years

North Dakota collected an estimated $29 million more in oil tax revenue in May as a result of a pricing anomaly that hadn’t happened in decades. 

Justin Kringstad, director of the North Dakota Pipeline Authority, said Wednesday crude oil produced in North Dakota sold for an average of $2.56 more per barrel than the West Texas Intermediate oil price benchmark in May, the most recent data available. 

“I had to go back to the 1980s to find a time period where there was a premium for North Dakota barrels,” Kringstad said during a monthly update on the state’s oil production. “So this is certainly an anomaly. I don’t anticipate this to continue long term.”

Kringstad found two months in 2003 and 2004 when small premiums occurred. But he had to go back to 1986 to find a month when North Dakota’s oil premium was as significant as it was in May. 

Oil from North Dakota is typically priced at a discount compared to the WTI benchmark because of the cost of transporting the commodity hundreds or thousands of miles away. 

Oil supply disruptions due to the Iran war, and the subsequent closure of the Strait of Hormuz, contributed to flip that dynamic on its head. The prices for oil at hubs, like the one at the end of the Dakota Access Pipeline, were significantly higher in May than the benchmark price. 

Kringstad said it was “a noteworthy event” for the Williston Basin but indicators suggest it will be temporary. 

Temporary or not, the premium paid for North Dakota oil that month resulted in a concrete benefit for the state. Kringstad said he estimates the state received approximately $29 million more in oil tax revenues than it would have if the average discount over the previous 12 months had still been in effect. 

The average market price for a barrel of North Dakota oil was $100.64, said Nathan Anderson, director of the North Dakota Department of Mineral Resources. That is 70.6% higher than the state’s revenue forecast, projections of price and projection, that is used for budgeting. 

Oil production in May was 2.17% below that same revenue forecast, at 1.125 million barrels per day. 

In Montana, there are currently 3 active oil rigs operating in Montana. 2 rigs in Roosevelt County and 1 in Richland County. 

Montana's oil production has been climbing steadily over the past several years. According to the U.S. Engery Information Administration, the state is currently producing about 78,000 barrels of crude oil per day. This compares to 52,000 barrels per day in 2020. 

North Dakota’s active drilling rig count has dropped to 24, despite high oil prices in recent months. There were 26 drilling rigs active from April to June. Anderson expects one drilling rig from Montana to shift to North Dakota in the coming weeks. 

Oil and gas companies are operating 588 drilling rigs in the United States, 26 more than in June. Most of that increase has been in Texas. 

“They just have the ability to deploy resources really quick and it’s less expensive,” Anderson said. 

It’s more expensive because inactive drilling rigs are located in Texas and moving one to North Dakota costs significantly more. The new oil production is also more cost-effective in Texas because exporting North Dakota oil creates an additional expense. 

The number of well completions, the last step before a well begins producing oil, and drilling permits has begun rising in recent months. That should help maintain North Dakota’s current levels of oil production, Anderson said.