Canadian Crudes Advance as TransCanada Begins to Fill Pipeline

Canadian heavy crude reached its strongest level in more than two months on the spot market as a pipeline connection to the U.S. Gulf Coast began filling with crude ahead of its startup next month.

TransCanada Corp.’s Gulf Coast Pipeline began linefill starting Dec. 7, Shawn Howard, a spokesman for the Calgary pipeline company, said in an e-mail. The line will receive 3 million barrels of oil before beginning deliveries from Cushing, Oklahoma to the Houston area by mid-to-late January, he said.

The Gulf Coast pipeline operated by TransCanada subsidiary Marketlink LLC will move an average of 520,000 barrels a day from Cushing next year as it ramps up to its full 700,000 barrel capacity, Howard said. The pipeline will allow Canadian heavy crude to reach Gulf Coast refineries. Enbridge Inc.’s Flanagan South pipeline from Illinois to Cushing will also strengthen the pipeline links to the Gulf Coast when it’s completed in the first half of next year.

“The line fill on Marketlink is going to be helping a little bit, because it seems like Cushing is going to be short heavy barrels until Flanagan comes on next year,” Chris MacCulloch, an analyst for Desjardins Securities Inc. in Calgary.

Western Canadian Select heavy crude oil strengthened by $3.75 to a $27-a-barrel discount against U.S. benchmark West Texas Intermediate oil, according to Calgary oil broker Net Energy Inc. That would be the narrowest gap since Sept. 19, based on data compiled by Bloomberg.

Lemont Refinery

Also supporting Canadian crude prices was the expectation that Citgo’s Lemont, Illinois, refinery will return to service a vacuum distillation unit that was shut by a fire in October, MacCulloch said. The company will try to restart the unit in mid-January, a person familiar with the matter said Dec. 5.

The Lemont refinery normally processes 170,500 barrels a day of mostly heavy crude from Canada, and its shutdown helped push WCS prices down to a discount of $42 a barrel on Nov. 5, their lowest point this year, according to data compiled by Bloomberg.

“The WCS discount is widest when one or more of those key refiners are down for maintenance,” Katherine Spector, CIBC World Markets Inc. Commodities Strategist, wrote in a note to clients today. “We would expect WCS to average at least $25 under WTI next year, but expect periods of much weaker pricing during periods of refinery outages.”

Canadian light Syncrude prices also strengthened on the Canadian spot market, gaining $1 a barrel to a $6.75 discount to WTI, Net Energy said. It would be the strongest price for the grade since Oct. 1, based on data compiled by Bloomberg.

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