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Canada Heavy Oil Gains as BP Refinery Said to Ramp Up New Coker

Canada heavy oil strengthened for a third day on the spot market as BP Plc’s Whiting, Indiana, refinery began the startup of a new coker that will allow it to start processing heavy oil-sands crude.

The 420,000-barrel-a-day Whiting plant brought online a new delayed coker, according to a person familiar with operations at the plant. Combined with a crude unit that started in June, the equipment will allow Whiting to process as much as 85 percent Canadian heavy crude, up from about 20 percent, the company’s website shows. The refinery is scheduled to ramp-up heavy oil consumption over a three-month period, the company said in an Oct. 29 presentation.

Western Canadian Select, a heavy blending including oil-sands bitumen, strengthened by $1.50 a barrel to a $33 discount to U.S. West Texas Intermediate crude for December delivery, according to Calgary oil broker Net Energy Inc. January deliveries also strengthened by $1.50 a barrel to a $29 discount.

“BP Whiting will be starting to take heavier crude slates,” Matt Portillo, an an analyst at Tudor, Pickering, Holt & Co., said in a phone interview from Houston. “It will suck up WCS and put more Syncrude on the market. We believe Bakken’s discount will become structurally wider over time.”

The refinery’s shift to heavy crude didn’t have an immediate effect on light oil spot prices. Bakken crude was unchanged at a $13.50 discount to WTI as of 1:50 p.m. New York time, data compiled by Bloomberg show, and Syncrude was 25 cents stronger at a $13.25 discount, according to Net Energy.

Refinery Fires

WCS prices have regained most of the ground lost over the last three weeks after two other refineries reported fires that damaged their heavy-crude processing units.

Prices reached a $42 discount to WTI after Citgo Petroleum Corp. reported a blaze at its 170,500-barrel-a-day Lemont, Illinois, plant Oct. 23, and a fire at Federated Co-operatives Ltd.’s Regina, Saskatchewan, refinery on Nov. 1 affected its heavy crude processing.

“Relative to BP Whiting, Lemont is a smaller refinery. BP Whiting has been slated to start producing heavy oil by December, so that’s having an impact,” David Bouckhout, senior commodity strategist at Toronto-Dominion Bank said in a phone interview from Calgary.

Bouckhout also said that WCS prices may be gaining support as sellers put more into storage for sale in future months, decreasing the supply available for sale.

WCS swaps show a narrower discount for forward months. February WCS was valued at at $27.88 below WTI, compared with a $30.64 discount for January futures, according to data compiled by Bloomberg.

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