Analysis: Exports of Canadian crudes from USGC rise on improved supply of sour crudes
Improved supply in the US Gulf Coast medium and heavy sour crude market led to a rise in exports of Canadian crudes from the USGC.
In Q1, the USGC sour crude market tightened on political upheaval in Venezuela and ensuing sanctions on the country’s oil industry, and on Alberta production curtailments, pushing heavy and medium sour grades in the USGC to peak.
US sanctions on Venezuela’s oil industry were originally announced on January 28, with addition sanctions put in place in March. These sanctions effectively ended the country’s crude exports to the US, leading to a shortfall of heavy sour crudes on the USGC. PDVSA, the state-owned Venezuelan oil company, exported an average of 720,000 b/d of crude and fuel oil in May, over 500,000 b/d less than the 1.29 million b/d exported from the country a year prior, according to a PDVSA document seen by S&P Global Platts.
The USGC medium and heavy sour crude market was further impacted by Alberta’s decision to curtail crude oil production in the province by 325,000 b/d. The curtailments took effect at the beginning of 2019, and since then, the cuts have eased by 150,000 b/d with an additional easement of 25,000 b/d slated to take effect in August.
These supply-side events, coupled with over 1.2 million barrels of production cuts by OPEC and its allies and Saudi Arabia’s focus on Asian market share over the North American market, pushed medium and heavy sour crude differentials on the Gulf to near record levels.
On March 14, Western Canadian Select on the USGC hit $3.75/b premium to the NYMEX WTI CMA, a record high according to Platts data going back to 2016. On July 8, the differential for the grade was assessed at a $2.35/b discount to the WTI CMA, over a $6/b change.
Similarly, the differential for medium sour crude Mars hit a five-year high on February 14 at an $8.10/b premium to cash WTI. The grade was assessed at a $2.60/b premium Monday.
“We have seen a sudden uptick of Canadian crude exports out of the US Gulf Coast starting late May, after practically nothing coming out in the first five months of the year,” Emmanuel Belostrino, an analyst at data intelligence firm Kpler, said. “This could be an indication that the domestic refiners are not as short of heavy sour crude anymore.”
“[Canadian] grades look good to export,” one trader said. “The value it’s at right now makes it an attractive export even though the Brent/WTI arbitrage isn’t great.”
Sporadic flows of heavy Canadian crudes to China have been observed since 2018. The crudes are very suitable for asphalt production and a good substitute for Venezuela’s Merey crude.
“Starting late May, at least around 6 million barrels of Canadian heavy sour grades have loaded out of the Gulf Coast, particularly from Nederland, Beaumont and Freeport in Texas and Port Allen in Louisiana,” Belostrino said. “Most of the cargoes are heading to China, with some on the way to India, and a vessel that already unloaded in Spain.”
According to Kpler, WCS, Cold Lake Blend, Access Western Blend, Borealis Heavy Blend and Kearl have been exported out of the USGC.
Western Canadian Select generally has an API gravity around 21, with a sulfur content of around 3.59%, while Mars generally has an API gravity around 29 with a sulfur content around 1.95%, according to S&P Global Platts data.