Canada Heavy Oil Jumps Most Since September as Output Slumps

Canadian heavy oil strengthened the most in almost six months on the spot market as weaker-than- expected output eased concern that lower refinery demand in the spring will keep the grade under pressure.

Canadian Natural Resources Ltd. (CNQ) reported fourth-quarter production yesterday of 592,080 barrels-of-oil equivalent, 12 percent below the average estimate of seven analyst polled by Bloomberg. Other oil sands projects including Syncrude also reported lower-than-expected production this month. The company said it accounted for 53 percent of the Western Canadian Select blend in 2012.

“The new information that the market is reacting to is that producers are indicating that their production is a little bit more subdued than expected,” said Judith Dwarkin, chief energy economist at ITG Investment Research Inc. “What the price is telling you is that the market balance is a lot tighter than what a lot of people were positioning for.”

WCS, a heavy blend of diluted oil-sands bitumen, strengthened $3.75 a barrel to $20 a barrel below U.S. benchmark West Texas Intermediate crude at 1:57 p.m. New York time, according to data compiled by Bloomberg. It was the strongest one-day move since Sept. 18, and the smallest discount for the grade since Oct. 22.

Rising production and limited pipeline space has put pressure on the price of Canadian heavy oil over the last several months, with Western Canada Select reaching a record discount of $42.50 a barrel on Dec. 14.

Constraints Eased

Less output from projects this winter has eased the pipeline constraints. Enbridge Inc. (ENB) export pipelines to the Midwest from Canada were not apportioned in March, the company said in a Feb. 21 e-mail. Export lines 4 and 67 carrying a combined 1.25 million barrels a day were apportioned for five months through February, meaning there wasn’t enough space to meet all requests to transport oil.

Midwest refinery maintenance this spring was also expected to reduce the demand for heavy crude. Plants that process heavy crude imports from Canada were said to have scheduled maintenance for April and May, including Exxon Mobil Corp. (XOM)’s 238,000-barrel-a-day Joliet, Illinois, units and Calumet Specialty Products Partners (CLMT)’ 45,000-barrel-a-day refinery in Superior, Wisconsin.

Exxon’s Joliet refinery will shut down for five weeks of maintenance starting in mid-April, a person familiar with the matter said. Calumet said it will close its Superior refinery late in the first quarter for about three weeks of work.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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