Canada Heavy Oil Near Record Discount on Midwest Refinery Outage

Canadian heavy crude weakened to near a record discount as a crude unit at a U.S. refinery that buys the grade remained closed because of a fire.

Citgo Petroleum Corp.’s Lemont, Illinois, refinery shut the unit after the fire on Oct. 23 and is expected to partially restart operations this week. Fernando Garay, a company spokesman in Houston, had no update on the timing of the restart when contacted by e-mail today.

Western Canadian Select heavy crude declined against U.S. West Texas Intermediate oil for a sixth day, dropping $1.25 a barrel to a $42 discount, the widest since a record of $42.50 reached on Dec. 14, according to data compiled by Bloomberg at at 3:41 p.m. New York time.

“I think a big part of it is the shutdown of Citgo’s Lemont refinery, which, according to my estimates, accounted for about 10 percent of Canadian heavy sour exports to U.S. refineries,” Stephen Schork, president of The Schork Group Inc. energy research firm, said in a phone interview from Villanova, Pennsylvania. “That’s a significant amount of demand destruction in the U.S. market.”

Also putting pressure on Canadian crudes was the lack of space on export pipelines out of Alberta, the country’s main producing province. The largest oil export system, Enbridge Inc. (ENB)’s 2.5 million-barrel-a-day Mainline, is overbooked on seven lines connecting crude from Alberta to the U.S. Midwest. The Calgary pipeline company reported overbooked conditions to shippers in a notice last week.

Mainline lines 2 and 3 from Alberta to Superior, Wisconsin, carry as much as 832,000 barrels a day of light oil and were overbooked by 17 percent, Enbridge said. Line 4 along the same route, carrying as much as 796,000 barrels a day of heavy oil, was overbooked by 13 percent.

Syncrude Canadian light oil for December delivery was unchanged at a $16 discount to WTI, remaining at its largest discount since March 13, 2012.

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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