Canadian Refiners Set to Buy More U.S. Oil With Wider DiscountRobert Tuttle
Cheaper North American oil is poised to replace West African and Middle East cargoes at eastern Canadian refineries with U.S. crude prices at the lowest level compared with the international benchmark in 14 months.
Imports to Canada from outside North America averaged 244,089 barrels a day this month through March 15, down 27 percent from a year earlier, according to New York-based ClipperData, which tracks tanker shipments.
Canada, the world’s fifth-largest oil supplier, produces most of its oil in the western province of Alberta and exports it south to the U.S. A lack of pipelines means Canada’s eastern refineries depend on imports by tanker and train.
U.S. export “volumes have been growing pretty exponentially,” Katherine Spector, a commodities strategist at CIBC World Markets Inc. in New York, said by phone Wednesday. U.S. oil is “going to Eastern Canadian refineries and displacing waterborne light crude.”
U.S. crude oil exports averaged 478,000 barrels a day the week ended March 13, up almost eightfold from a year earlier, preliminary data from the Energy Information Administration show. Canada, the only country that U.S. producers can export to without restrictions, receives the bulk of the shipments.
Oil has flowed north as West Texas Intermediate crude’s discount to Brent averaged $9.43 a barrel this month from $2.41 in January as U.S. stockpiles rose to a 458.5 million barrels, the most in decades.
The U.S. displaced Algeria in 2013 as Canada’s biggest source of imported oil and accounted for about half of imports in the first eight months of last year, the country’s National Energy Board said in a November report. The trend was driven by availability of tight oil from North Dakota as well as Texas, New Mexico and Colorado.
Bakken crude from North Dakota traded at about $40 a barrel today versus $55 for oil from West Africa, according to data compiled by Bloomberg.
“Especially with lower prices, a difference of a dollar or so in transport costs is significant,” Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts, said by phone Wednesday. “If you can bring it in from the U.S. rather than West Africa, it’s a little closer and cheaper.”
Expanded rail capacity has linked U.S. oil producers with Canada, Spector said. The movement parallels the movement of Bakken crude to U.S. East Coast by rail, which cut the region’s imports of crude from Nigeria by half in two years and from Algeria by 81 percent, EIA data show.
“The maritime provinces of eastern Canada do resemble the U.S. East Coast in many ways,” Antoine Halff, head of the International Energy Agency’s oil industry and markets division, said in a March 18 phone interview. “When Bakken crude started being railed to the U.S. East Coast in significant quantities, it displaced imports from West Africa.”