Page 4 - NorthAmOil Week 23 2022

NorthAmOil COMMENTARY NorthAmOil

SPR release takes a toll

on Canadian crude

Releases from the US Strategic Petroleum Reserve mean that

the Gulf Coast is dealing with a glut of heavy crude and that

appetite for Canadian oil is reduced

NORTH AMERICA A release of oil currently underway from the US’ year, when Enbridge placed its Line 3 replace-
Strategic Petroleum Reserve (SPR) is creating ment pipeline into service, boosting takeaway
WHAT: difficulties for shipments of Canadian heavy capacity from the oil sands to the US. This
Canadian producers crude to the country. helped narrow the discount between West
have been benefiting The release is the largest in US history, hav- Texas Intermediate (WTI) and WCS, which
from additional pipeline ing been launched in response to market sup- had previously blown out to more than $40
capacity to the US, but ply disruptions caused by Russia’s invasion of per barrel, causing the Alberta government to
the appetite for Canadian Ukraine in February, with the aim of helping implement production cuts in a bid to prop up
oil on the Gulf Coast has to keep a lid on rising crude prices. In total, the prices. Thanks to the Line 3 replacement, WCS
been dampened. US is releasing 180mn barrels of SPR crude, started trading at the same level as comparable
with roughly 1mn barrels per day (bpd) being crude grades such as Mexico’s Maya, improving
WHY: released between May and July, and a further the profitability of producing and exporting
The US is currently in the release scheduled between August and October. Canadian crude.
midst of the largest ever This means, however, that a glut of sour crude The WCS price had been expected to be fur-
release from its Strategic has materialised on the US Gulf Coast – a major ther strengthened by planned maintenance at
Petroleum Reserve in a market for Canadian heavy crude. This is hit- certain oil sands projects, which would have
bit to lower crude prices. ting demand for new production of heavy crude cut into supply. However, the SPR release is now
and medium-heavy blends, including US grades undermining this.
WHAT NEXT: such as Mars and Poseidon, as well as Western “It’s not great timing,” the founder of the
Canadian oil production Canadian Select (WCS). Commodity Context’s newsletter, Rory John-
is forecast to continue ston, was quoted by Reuters as saying. “The
rising this year, Undermining demand vast majority of what’s coming out of the SPR is
potentially creating more This scenario threatens to undermine what medium sour crude. It’s hitting directly at that
bottlenecks. could have been a period of stronger demand marginal pricing point for WCS.”
for WCS. Meanwhile, BMO Capital Markets said in a
Canadian production received a boost last note that there were other factors causing the

Increased pipeline
capacity from the
oil sands to the US
had narrowed WCS’
discount compared with
WTI but this is now
being undermined.

P4 www. NEWSBASE .com Week 23 09•June•2022