OPEC Cuts Filling Wallets Of North American Oil Producers

  • Date: 24/03/17
  • Bloomberg

OPEC’s supply cuts are providing a windfall for producers of heavy crude from Western Canada and the Gulf of Mexico.

Prices for Western Canadian Select and Mars grades have strengthened relative to benchmark West Texas Intermediate since OPEC began implementing its reductions this year. These gains have held even after WTI sank below $50/bbl earlier this month amid rising U.S. output.

The Organization of Petroleum Exporting Countries and other large producers agreed to reduce output from January to rebalance an oversupplied global market, but individual members were left to decide how to implement their pledges. Saudi Arabia and its neighbors reduced exports of less-expensive heavy, sour crude, leaving refiners to seek similar grades from North America. Heavier oil is more complex to refine, requiring more secondary processing to make high-value transportation fuels.

“We are seeing a real hunger for the heavy oil,” Bill McCaffrey, CEO of MEG Energy Corp., a Canadian oil sands producer, said in a Feb. 9 conference call.

Western Canadian Select was $12.70/bbl below West Texas Intermediate Wednesday, according to data compiled by Bloomberg, the narrowest discount since June. Mars reached a $1.45 discount this week, the tightest since February 2016.

“The cut will reduce the availability of heavier imports from overseas, creating an opportunity for more domestic barrels to be soaked up,” Mara Roberts, a New York-based analyst at BMI Research, said in a phone interview.

Two shipments of heavy Southern Green Canyon crude from the U.S. Gulf of Mexico set sail for Japan in January and February and India’s Reliance Industries Ltd. purchased a cargo of Western Canadian Select for its Jamnagar refinery set to arrive next month.

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