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Mexico to benefit from canadian oil disruption, OPEC cuts

Heavy Canadian crude's discount to Maya is smallest since May. Gulf Coast refineries seen taking cheaper Mexican supply

Petroleumworld 04 05 2017

Canadian crude shipments to the U.S. are poised to shrink just as the effects of OPEC-led output cuts are being felt in the Caribbean. That's good news for Mexico and other local oil producers.

Syncrude Canada Ltd. told customers they wouldn't receive any supply in April from its 350,000-barrel-a-day upgrader, according to people familiar with the matter. The plant, which turns bitumen from Alberta's oil sands into light synthetic crude, moved forward maintenance following a fire last month. Light crude and condensate jumped to the highest level in more than a year last week, and Western Canadian Select on Monday was the strongest since June 2015, when wildfires in Alberta disrupted production.

The loss of some Canadian shipments comes just as U.S. refiners are returning from seasonal maintenance and shipments from the Middle East are declining. Mexico stands to benefit from the disruption, as the higher heavy Canadian crude prices make its similar Maya grade more attractive to U.S. Gulf Coast refiners.

The Organization of Petroleum Exporting Countries pumped 32.095 million barrels a day in March, down 200,000 from the previous month, according to a Bloomberg News survey of analysts, oil companies and ship-tracking data. Traders were said to have pulled between 10 million and 20 million barrels of oil from storage in the Caribbean, according to estimates from traders who asked not to be named because their data is proprietary.

U.S. inventories have remained stubbornly high following the output cuts by OPEC and other large producers that took effect in January, even as signs elsewhere point to the market rebalancing. That may be starting to change: analysts surveyed by Bloomberg expect U.S. inventory data due Wednesday to show the biggest weekly decline this year.

The Syncrude production cut is affecting other oil sands producers, including ConocoPhillips , that mix synthetic crude with their oil sands bitumen to ease its transport. On Monday, Suncor Energy Inc. , Syncrude's majority owner, repeated a statement from last week saying that pipeline shipments of treated product from the Syncrude site will resume in April at 50 percent capacity.

Western Canadian Select crude traded at $3.71 a barrel less than Mexican Maya Tuesday, the smallest discount since wildfires shut about a million barrels of oil sands production in May. The price difference is too small to cover the $7 it costs to ship a barrel of the heavy Canadian to the Gulf Coast by pipeline, according to Carl Evans, an analyst at Genscape Inc.

“Probably the Gulf will take as much Mexican as it can,” Evans said Monday by phone.

The jump last week in prices of synthetic crude and condensate, which are both mixed with bitumen so it can flow easily through pipelines, pushed up heavy crude prices. Western Canadian Select surged 30 cents Tuesday to $10.20 a barrel below West Texas Intermediate, the U.S. benchmark, the smallest discount in almost two years, data compiled by Bloomberg show.

The Gulf Coast imports of Canadian crude have more than doubled in the past three years as new pipelines capacity opened up. Over the same period, Mexico's shipments to the U.S. fell by about one-third.

Story by Robert Tuttle from Bloomberg

bloomberg.com 04 04 2017

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