U.S. SPR Launch Is Creating A Drawback For Canada’s Heavy Crude Oil

• Heavy crude launched from the U.S. SPR is competing with Canadian heavy crude.
• WCS low cost to WTI has elevated to $20 per barrel.
• Steep low cost of WCS to WTI is not bringing down crude costs typically.

The Strategic Petroleum Reserve launch in the US—a big one designed to launch 1,000,000 barrels per day from storage into the business markets—is making a little bit of an issue for the Canadian oil business.

All crude oil grades aren’t equal, and a big share of what the SPR is releasing into the Gulf Coast space is heavy bitter crude—the same grade to the oil shipped down from Canada.

The heavy Mars and Poseidon grades—each hailing from the GoM space and each heavy grades—are getting misplaced within the sea of heavy crude flooding the market from the SPR. So is Western Canadian Choose (WCS)—the Canadian crude oil that traverses pipelines from Hardisty, Alberta, to the U.S. Gulf Coast.

The WCS low cost to the U.S. crude benchmark West Texas Intermediate (WTI) is now the steepest in years at $20 per barrel.

“It’s not nice timing,” Rory Johnston, founding father of the Commodity Context publication based mostly in Toronto, instructed Reuters. “The overwhelming majority of what’s popping out of the SPR is medium bitter crude. It’s hitting immediately at that marginal pricing level for WCS.”

Canada isn’t any stranger to battling steep reductions—additionally known as broad spreads—in comparison with U.S. crude oil. For a number of years, their lack of pipeline capability into the US created a state of affairs the place all their pipelines had been full, and the bottlenecking on this midstream section created a pricing state of affairs most unfavorable to Canada.

By 2020, Canada had elevated its storage capability and slacked crude oil manufacturing, which dragged up the worth of WCS—and shrunk the hole between WCS and WTI. In comparison with right now’s steep $20 low cost, June 2020 contract pricing for WCS was simply $3.80 per barrel.

For these considering that the steep low cost to WTI means the SPR is working to convey down crude oil costs, that’s not the case. As of Thursday morning, WCS was buying and selling at $108.01—practically double what it was buying and selling this time final 12 months.

By Julianne Geiger for Oilprice.com

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