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Pipelines unclogged, but Canadian crude now faces U.S. Gulf Coast glut -Breaking

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© Reuters. FILE PHOTO – Crude oil storage tank seen at Kinder Morgan terminal near Edmonton (Alberta), Canada, November 14, 2016. Picture taken November 14, 2016. REUTERS/Chris Helgren/File Photograph

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Arathy Somasekhar, Nia Williams

(Reuters) – After being long discounted because there were no pipelines, Canadian heavy oil is now trading as a “North American” crude, and moving with U.S. sour oils sold along the Gulf Coast.

Canadian producers have been hit hard by the sour oil gushing into the Gulf. It is the result of Washington’s most significant-ever withdrawal from the Strategic Petroleum Reserve. (SPR). This release will be 180 million barrels and last six months.

From storage facilities in Texas and Louisiana, millions of barrels of sour oil are flooding onto the markets. At the U.S. Gulf Coast (the world’s biggest heavy crude refinery center), you will find heavy grades such as Mars and Poseidon.

Western Canada Select sold more than 3000 kilometres in Hardisty, Alberta.

More than $20 per barrel was paid for July WCS in Hardisty, which represents the lowest price since early 2020.

Rory Johnston (founder of Commodity Context, a newsletter that is based in Toronto) said “It’s not great Timing.” “The majority of the SPR’s output is medium-sour crude. This is directly hitting the marginal pricing level for WCS.

Market players were expecting a stronger period of WCS demand. This is due to the maintenance on oil sands project reducing supply, and U.S. refineries leaving turnarounds.

The WCS discount has also been influenced by the rising price of and, in turn, increased demand for light products such as gasoline. Randy Ollenberger, analyst at BMO Capital Markets, stated that this was due to a number of factors.

CAPACITY OF PIPELINES

According to U.S. Energy Information Administration data (EIA), Canada exported approximately 4.3 million barrels per daily (bpd), but demand for crude oil on pipelines was exceeding capacity up until last year, leaving Hardisty with a bottleneck.

2018 saw a record breaking WCS discount in Hardisty, which led to the Alberta government restricting production.

WCS now trades at the same level of comparable crudes such as Mexico’s Maya, because there is enough pipeline capacity. Canadian producers will receive the same value as Mexican crudes, but with a spot tariff of $10 per barrel to the U.S. Gulf Coast.

According to EIA, Canadian production will rise by 200,000 bpd before 2022 ends. Robert Auers from RBN Energy said that it could create bottlenecks until Trans Mountain Pipeline expansion to Canada’s Pacific coast in 2023. It will increase Canada’s capacity by 600,000 BPD.

Auers stated that a huge differential blowout, such as what we witnessed in 2018, was unlikely because producers will likely be ready for it and ramp up crude-by rail volumes to prepare.

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