Canadian oil disruption, OPEC output cuts open door for Mexico

By Robert Tuttle on 4/4/2017

CALGARY (Bloomberg) -- 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 told customers they wouldn’t receive any supply in April from its 350,000 bpd 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.

OPEC pumped 32.1 MMbpd in March, down 200,000 bpd from the previous month, according to a Bloomberg survey of analysts, oil companies and ship-tracking data. Traders were said to have pulled between 10 MMbbl and 20 MMbbl from storage in the Caribbean, according to estimates from traders who asked not to be named.

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 out Wednesday to show the biggest weekly decline this year.

Western Canadian Select crude traded at $4.12/bbl less than Mexican Maya Monday, the smallest discount since wildfires shut about a million bbl 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. The jump last week in prices of synthetic crude and condensate, which are mixed with bitumen so it can flow easily through pipelines, pushed up heavy crude prices. Western Canadian Select surged $0.90 to $10.50/bbl below WTI, the smallest discount in almost two years, Bloomberg data 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.

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