& Tobago


Very usefull links


News links




Dow Jones

Oil price



Views and News






Saudi and Canadian cuts are leaving world hungry for heavy crude

Simon Dawson/Bloomberg

In Venezuela, another heavy crude producer, exports fell to a 28-year low in 2018 as political strife and economic collapse struck at the country's most important industry.

-Play video: Oil Will Be Choppy But Solid Moving Forward, Says Prestige Economic's Schenker

- Western Canada Select trades at strongest price in 10 years
- Alberta curtailment adds to less supply from Saudis, Venezuela

By Robert Tuttlec and Sheela Tobben / Bloomberg

Petroleumworld 01 14 2019

Output cuts in oil-rich Alberta and Saudi Arabia are combining to leave heavy-crude refiners from the Gulf of Mexico to Asia in a bind.

While curtailments in the Canadian province have propelled local prices to their strongest level in almost a decade, other grades like Arab Heavy and Heavy Louisiana Sweet are also surging. The Saudis are expected to largely focus on paring output of heavy crude as they lead efforts to rebalance the global market.

“Historically, when the Saudis have cut output, it's heavy and medium crude,” said John Auers, executive vice president at energy consultant Turner Mason & Co. in Dallas.

This means the type of oil that accounts for more than 10 percent of the world's refinery supplies, already growing scarce with Venezuela's collapse, will probably be even harder to come by. More than half of the world's heavy crude is processed in the U.S.

In Canada, heavy-crude prices have surged since last month when Alberta Premier Rachel Notley mandated a production curtailment of 325,000 barrels a day starting in January to alleviate a pipeline crunch. Western Canadian Select traded at a discount of just $6.95 to West Texas Intermediate light crude on Friday, the smallest gap in almost a decade and not big enough to cover the cost of rail or most pipeline shipments to the U.S. Gulf Coast. That's down from as much as $50 in October.

Meanwhile, OPEC's top producer Saudi Arabia curtailed its crude outflows by nearly 500,000 barrels day in December and exports are expected to tumble more this month because of an agreement by OPEC and its allies to reduce production by 1.2 million barrels a day after oil prices collapsed late last year.

In Venezuela, another heavy crude producer, exports fell to a 28-year low in 2018 as political strife and economic collapse struck at the country's most important industry.

“The broad trend we are seeing is that it is a short market for heavy crude,” said Kurt Barrow, vice president of the oil markets, midstream and downstream energy at IHS Markit.

Heavy Louisiana Sweet, which normally trades at a discount to Light Louisiana Sweet, was instead trading at 45 cent premium on Friday, the biggest premium since March. Saudi Arabia set the official selling price for its Arab Heavy grade for February to the U.S. at a 50 cent premium to the Argus Sour Crude Index, the first premium in at least 10 years.

Asian Market

If the Saudis indeed cut mostly medium and heavy crude, the Asian market, which usually buys those grades from the kingdom, will be the hardest hit. That could widen the Dubai-WTI spread and create arbitrage to ship Gulf of Mexico crudes to Asia. The WTI-Dubai spread “tells you whether the U.S. is competing in Asia at the moment," according to Sandy Fielden, director of research for the commodities group at Morningstar Inc. in Austin.

Refiners along the Gulf Coast and in the Midwest invested billions of dollars in cokers and other heavy-oil processing units over the past three decades anticipating supplies of light oil would become scarce while heavy crude from Canada's oil sands, Venezuela and Mexico would grow. Instead, the opposite occurred.

The shale revolution, as well as new offshore supplies form Brazil and West Africa, caused a surge of light oil, while supplies from Venezuela to Mexico declined. Canada's growth has been stymied by delays in getting new pipelines built.

“U.S. Gulf refiners are short of heavy crude right now because of reduced Venezuelan output and the inability to increase Canadian flows because of pipe issues,” Auers said.

Mexico's Appeal

This means American refiners will probably be turning more to Mexico. The premium of Mexico's Maya to Canada's WCS has fallen to about $10 per barrel, the narrowest since May, from about $50 three months ago. If you add in the higher cost of shipping crude to Texas by pipeline or rail from Alberta versus a tanker from Mexico, the difference is even smaller.

But the heavy-crude rally could be short-lived as the market starts to prepare for new International Maritime Organization specifications for ocean-going ship fuel that will take effect next year. The rule cuts the sulfur content of ship fuels, making most heavy oil grades less valuable to refiners who will seek to increase production of lower-sulfur diesel and low-sulfur fuel oil.

“Once IMO starts, heavy crudes will be cheaper,” Auers said.

Original article



We invite you to join us as a sponsor. Circulated Videos, Articles, Opinions and Reports which carry your name and brand are used to target Entrepreneurs through our site, promoting your organization’s services. The opportunity is to insert in our stories pages short attention-grabbing videos, or to publish your own feature stories.


Story by Robert Tuttlec and Sheela Tobben/ Bloomberg from Bloomberg.

bloomberg.com 01 14 2019


We invite all our readers to share with us
their views and comments about this article.

Write to editor@petroleumworld.com

By using this link, you agree to allow PW
to publish your comments on our letters page.

Any question or suggestions,
please write to: editor@petroleumworld.com

Best Viewed with IE 5.01+ Windows NT 4.0, '95, '98,ME,XP, Vista, Windows 7,8,10 +/ 800x600 pixels

Twitter: @petroleumworld1



Contact: editor@petroleumworld.com,

Editor & Publisher:Elio Ohep/
Contact Email: editor@petroleumworld.com

CopyRight © 1999-2019, Elio Ohep A. - All Rights Reserved. Legal Information

PW in Top 100 Energy Sites

CopyRight©1999-2019, Petroleumworld ™  / Elio Ohep - All rights reservedThis site is a public free site and it contains copyrighted material the use of which has not always been specifically authorized by the copyright owner.We are making such material available in our efforts to advance understanding of business, environmental, political, human rights, economic, democracy, scientific, and social justice issues, etc. We believe this constitutes a 'fair use' of any such copyrighted material as provided for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed without profit to those who have chosen to view the included information for research, information, and educational purposes. For more information go to: http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond 'fair use', you must obtain permission fromPetroleumworld or the copyright owner of the material.