Canadian crude discount shrinks further2/7/2013
Canadian heavy crude prices climbed to their highest point in 12 weeks on Wednesday on the back of reduced pipeline congestion and speculation that some players may have been caught short, trading sources said.
Western Canada Select heavy blend for March delivery last sold for $26.75 a barrel under benchmark West Texas Intermediate, compared with a Tuesday settlement of $28.75 a barrel under, according to Shorcan Energy Brokers.
That was its narrowest differential since Nov. 12. Traders said they were surprised by this month’s steady gains, which come after two months of discounts that at times topped $40 a barrel.
Surging production, tight pipeline capacity and a series of refinery outages have been blamed for the slump.
Some of the recent strength is the result of “most likely, some guys having to cover losses,” one marketer said.
Apportionment levels on Enbridge Inc’s pipeline network to the U.S. Midwest are below those set for last month, easing some of the price pressure, traders have said.
The company put single-digit restrictions on Line 5, 4 and 67, and 21 percent apportionment on Line 6B. Last month Enbridge imposed a rare mid-month apportionment.
In addition, the start-up of Imperial’s 110,000 barrel a day Kearl project in northern Alberta, first expected to begin commercial production at the end of 2012, is now targeted for the end of the first quarter. Full production is scheduled for the “next several months”.
Light synthetic crude prices also strengthened on Wednesday after Suncor Energy Inc and Syncrude Canada reported lower oil sands-derived crude production for January.
March light synthetic last sold for 65 cents above WTI, compared with a discount of 35 cents on Tuesday.
Oil rebounded as an Energy Information Administration report showed a drop in inventories at Cushing, Oklahoma, the delivery point for West Texas Intermediate crude traded in New York.
Futures rose as much as 0.4 percent after stockpiles declined 315,000 barrels at the hub last week to 51.4 million, a one-month low. Nationwide supplies gained 2.62 million barrels to 371.7 million. WTI’s discount to Brent oil widened to the most this year earlier on concern that limits on the Seaway pipeline trimming flows would bolster a glut at Cushing.
“It looks like a lot of buyers are using railcars to avoid the bottleneck at Cushing,” said Richard Soultanian, co- president of NUS Consulting Group, a Park Ridge, New Jersey- based energy procurement adviser. “Anyone that can avoid Cushing is going to.”
Crude oil for March delivery rose 23 cents to $96.87 a barrel at 12:25 p.m. on the New York Mercantile Exchange. The contract traded at $95.68 before the release of the report at 10:30 a.m. in Washington. Trading was 95 percent above the 100- day average for this time of day. Futures are up 5.5 percent this year.
Brent oil for March settlement gained 52 cents, or 0.4 percent, to $117.04 a barrel on the London-based ICE Futures Europe exchange. Brent volume was 39 percent above the 100-day average.
The European benchmark grade traded at as much as a $20.87- a-barrel premium to WTI, the widest spread on an intraday basis since Dec. 21. The gap has grown since Enterprise Products Partners LP said Jan. 31 that capacity on the Seaway pipeline to the Gulf Coast from Cushing will be limited until late 2013.
Increasing output in the U.S. and Canada and the lack of pipeline capacity bolstered stockpiles at Cushing to a record 51.9 million barrels in the week ended Jan. 11.
PBF Energy Inc. said on Feb. 4 that it expects to receive its first rail shipment from North Dakota at its Delaware refinery. PBF finished construction on the second train unloading terminal at its 182,800-barrel-a-day Delaware City refinery, the company said in a statement. PBF expects to unload its first unit train of Bakken oil this week, with 17 more scheduled to arrive in the next two weeks.
The crude supply gain left U.S. stockpiles at the highest level since the week ended Dec. 7, the report showed. Crude production advanced 4,000 barrels a day to 7 million in the week ended Feb. 1, the EIA, the Energy Department’s statistical arm, said today.
“U.S. inventories are extremely robust,” said Adam Wise, who helps manage a $6 billion oil and gas bond portfolio as a managing director at Manulife Asset Management in Boston.
Refineries operated at 84.2 percent of capacity in the seven days ended Feb. 1, down 0.8 percentage point from the prior week. Refiners often idle units for maintenance at this time of year as demand shifts away from heating oil and before gasoline use rises.
The U.S. will tighten sanctions on Iran today with measures blocking the exporter from repatriating oil payments in dollars, euros and other hard currencies. The new restrictions are aimed at stopping that country’s nuclear program.
Crude buyers such as China, Japan and India must use their own currencies to pay Iran and keep the payments in escrow accounts, or else risk expulsion from the U.S. banking system. Iran will be able to use the funds only for locally sourced goods and services, in what will amount to barter arrangements.
WTI’s rebound in New York stalled yesterday along the bottom of an uptrend channel that was breached the previous day, signaling technical resistance, where sell orders may be clustered. This indicator is around $97.50 a barrel today, according to data compiled by Bloomberg.