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Msg  182190 of 280754  at  1/12/2019 10:48:12 AM  by


Heavy Crude Demand


Saudi and Canadian Cuts Are Leaving World Hungry for Heavy Crude

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

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.


    Oil Bears Get Out of the Way as Crude's Rebound Takes Hold

    Alex Nussbaum
    • Hedge funds started year cautious but slashed shorts this week
    • Wagers on rising crude prices climb by most in four weeks
    Oil Analyst Streible Says $60 Is a Good Average Price for 2019
      Oil Analyst Streible Says $60 Is a Good Average Price for 2019

      Crude oil’s rally is starting to sweep away the pessimists.

      After starting 2019 on a cautious tone, hedge funds this week slashed bets on falling Brent crude prices to the lowest level since mid-November, as they looked to get out the way of a recovery that pushed oil back into a bull market. Wagers on increasing prices climbed the most in a month, reversing course from last week.

      The global benchmark surged this week, as the U.S. and China made progress in trade talks and Saudi Arabia reaffirmed its commitment to head off a supply glut. Money managers have turned alternately bullish and bearish on the rally in recent weeks, but the evidence for a sustained move higher is getting harder to ignore, said Mark Waggoner, president of Oregon brokerage Excel Futures Inc.

      “Just having another positive week is going to be huge for a lot of people’s psyches, after we got so beat up last year," Waggoner said by telephone. “I think you’re going to see more of them coming on board next week."

      Brent has gained more than 20 percent since hitting an 18-month low in late December. Nonetheless, it’s still down by almost a third since October and faces continuing pressure from the boom in U.S. shale drilling and an uncertain economy. Prices fell for the first time in two weeks on Friday, retreating 2 percent to $60.48 a barrel.

      U.S. crude prices finished the week up 7.6 percent, their best showing in six months. Data on hedge fund wagers for West Texas Intermediate crude weren’t available due to the U.S. government shutdown.

      Brent net-long positions -- the difference between bullish and bearish wagers -- climbed 3.8 percent to 158,146 options and futures contracts in the week ending Jan. 8, the ICE Futures Europe exchange said on Friday.

      Most of the shift came from a 3.6 percent decline on contracts predicting a Brent drop. Bets on rising prices edged up 0.8 percent. They’ve traded gains and losses for the past six weeks.

      Late December’s more bearish stance “was more about hedge funds squaring their books after they’d had a very bad year," said Frances Hudson, a global thematic strategist at Aberdeen Standard Investments in Edinburgh. Sentiment has improved markedly, she said in a telephone interview.

      “Things se

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      Recs: 23     Views: 764
      Previous Message  Next Message   Post Message   Post a Reply return to message boardtop of board

      Msg # Subject Author Recs Date Posted
      182196 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 coolreit 5 1/12/2019 11:37:20 AM
      182205 Re: Heavy Crude Demand - Important correction of conclusion by Big Orrin: coolreit 4 1/12/2019 1:10:21 PM

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