Spot crude from Alberta strengthened against the U.S. benchmark West Texas Intermediate oil as California, the third-largest oil-refining state in the U.S., takes a record volume of oil from Canada by rail.
The discount for Western Canadian Select narrowed as a report showed California, the most populous U.S. state, received 709,014 barrels of crude from Canada by rail in December, a 4.9 percent increase from November and up from zero a year ago, data posted on the state Energy Commission’s website show. Canada made up 67 percent of the state’s total oil-by-rail receipts that month.
U.S. West Coast refiners from Valero Energy Corp. to Tesoro Corp., lacking pipeline access to the glut of shale oil growing in the middle of the country, have been increasingly importing oil by rail to counter declining supplies in California and Alaska. California brought in a record 2.83 million barrels of oil by rail in the fourth quarter, almost double the amount from the three months prior, the state said.
“Certainly, exports to the West Coast are going to increase,” Andy Lebow, vice president at Jefferies Bache LLC in New York, said by phone. “It’s a factor in the Canadian crude differentials strengthening.”
WCS, a mixture of heavy crudes priced in Hardisty, Alberta, strengthened by 50 cents a barrel to a discount of $18 less than WTI at 2:07 p.m., according to data compiled by Bloomberg. Syncrude, a light synthetic crude, strengthened by $2.50 to a premium of $1.25 over WTI.
Canadian oil discounts “have been pretty big, an indication of how constrained the pipelines are up in Canada,” Gordon Schremp, a fuels analyst at the state Energy Commission, said by telephone from Sacramento. “I’m not surprised to see more Canadian come in. Wait until some of these rail projects get built here. The economics will be even better than what we’re seeing today.”
Oil-by-rail receipts from Wyoming totaled 221,793 barrels in December, making up the second-largest share of the state’s volume at 21 percent. North Dakota, where fields in the Bakken formation are producing a record volume of crude, sent 62,325 barrels, making 5.9 percent of rail shipments. New Mexico delivered 12,927.
Bakken oil for delivery at Clearbrook, Minnesota, has traded $15.98 a barrel above WCS in the past month, data compiled by Bloomberg show.
“We’re seeing a lot of Canadian crude-by-rail loading facilities coming online, so it’s no surprise it’s beginning to show up in California,” David Hackett, president of energy consulting firm Stillwater Associates in Irvine, California, said by telephone. “Refinery configuration in California is oriented toward heavy or medium sour crude, and the Canadian barrels, which are heavy and somewhat sour, are a better fit than the light Bakken barrels.”
Alaska North Slope crude, which made up 12 percent of California’s oil slate in 2012, weakened $1.55 a barrel versus WTI to a premium of $5.75, the lowest since November, data compiled by Bloomberg show. The oil has traded an average $27.22 a barrel above WCS over the past month, data compiled by Bloomberg show.
Alaskan oil output has declined every year since 2002 as the yield from existing wells shrinks. Alaska North Slope crude production averaged 567,600 barrels a day in December, down from 582,150 a year earlier, data posted on the Alaska Department of Revenue’s website today showed.
California crude output has slid every year since 1998, dropping to 536,000 barrels a day in 2012, according to the Energy Information Administration, the Energy Department’s statistical arm.
TransCanada Corp.’s Keystone XL pipeline, proposed to carry Canadian oil-sands to U.S. Gulf Coast refineries, cleared a key hurdle last week with a government study that found its impact on the climate would be minimal.
The cost of shipping oil-sands product on the Keystone line versus by rail “are unlikely to differ widely enough to dent the pace of production growth,” Barclays Plc analyst Michael Cohen in New York, said in an e-mailed research note today. Carrying bitumen by rail to Port Arthur, Texas, from Hardisty-Lloydminster, Alberta, is $17.70 a barrel compared with the committed pipeline shipper rate of $18.38, Cohen said.