Oil's Next Act: Transportation

According to Reuters, the Libyan Government will seize any tanker that attempts to enter its Ra's Lanuf port.

Battling parties for government power in Libya had been responsible for the closure of the port. Marine traffic shows some fishing, tanker, and livestock vessels in ports in Libya but most, including large tankers, are avoid the area (Image).

The Libyan Petroleum Facilities Guard has orders to "intercept any tankers trying to approach the oilfields for security and technical reasons" according to Reuters citing NOC Chairman Yousef Bu Saifi.

The Lybian refusal to let any ships in its ports appearing to bring aid to enemy combatants is just another annoyance the industry has to deal with. One month ago, almost to the day, Benzinga reported on the Singapore pirates attacking ships and stealing cargo, even going as far as to repaint one.

A review of the U.S. crude import and transportation data appears reasonable as the oil industry prepares to move stored oil and shipping enters the center of the stage.

Since 2010, Non-OPEC countries' Landed Costs of Imported Crude have run below those of OPEC and Persian countries, according to the EIA.

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The Landed Crude Oil Cost refers to the price of crude at the port in which it departs from. This cost does include purchasing, transporting and insuring the cargo, but does not include things like tariffs and import fees incurred at the arrival port.

When breaking down the above chart, it is evident the U.S.'s cheapest import cost comes from Canada ($45.69/brl), then Mexico ($51.60/brl), followed by Venzuela ($52.51/brl), Colombia ($56.70/brl) and Saudi Arabia ($58.80/brl) as of April 2015, according to EIA data.

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Venezuela accounts for 9 percent of the U.S. daily oil import, behind Saudi Arabia (13 percent) and Canada (37 percent).  As of April Canadian oil landed import cost was $45.69

Brown Brothers Harriman (BBH) noted in a 2012 report the conundrum associated with builds in Oklahoma's Cushing district. Cushing is the largest central distribution point in the U.S. and it hasn't' adjusted its infrastructure to handle the shale industry expansion that happened until the oil price collapse put shale players on watch.

The United States pipeline infrastructure is roughly 2.6 million miles in length and operated by nearly 3,000 companies, according to the U.S. Department of Transportation (DOT). These pipes run throughout the U.S. and connect the five Petroleum Administration For Defense Districts (PADD) for short along with various logistics lines including rail.

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The July investor letter from Andrew Hall of Astenbeck saw fundamentals improve for oil going forward: “Despite the lackluster price action, underlying fundamentals for oil continue to improve. It is becoming increasingly clear that the huge oil surplus that most analysts predicted for the first 6 months of 2015 failed to materialize."

Refiner acquisition costs, which include transportation and other refiner fees have collapsed recently, making refiner margins all the more appealing for the bulls.

The U.S. has brought new projects on-line in the past couple years allowing more oil to flow into Cushing and enabling large capacity for pumping to the Gulf Coast for export. Bakken in North Dakota is increasing its pipeline capacity and rail capital investments have to increase rail capacity for transport.

According to BBH, Bakken should be able to move nearly 90 percent of its production by the end of 2015. CSX Corporation CSX, third largest operator in the U.S. by market-cap, lacks any access to this rail game in PADD, according to an image on the company website.

CSX Crude Oil Rail Network (Click to Enlarge)

Burlington Northern Santa Fe, the rail line purchased by Warren Buffett in 2009, is the only major rail operator connected in the Bakken region. Publicly traded Canadian Pacific Railway Limited (USA) CP does have a line running through the state into Canada that allows a stop off at Dakota Plains refinery and may offer some exposure to the regions need to move it's supply.