Buyers increase cheap crude purchases
Asian oil buyers have increased their purchases of cheap Alberta crude in recent months as the world supply of grades of heavy oil shrinks, according to industry analysts.
“Anybody who can get their hands on Canadian crude is going to want to get their hands on Canadian crude,” said Kevin Birn, a Calgary-based industry analyst for the U.K. firm IHS Markit.
With Canadian bitumen-laden oil selling for about US$25 a barrel, and the benchmark price for West Texas Intermediate at US$63, buyers are tapping what they can from the thin stream available from the existing Trans Mountain Pipeline.
The price is cheap because a glut of rising production from Canada’s oilsands is building behind bottlenecks in pipeline capacity to move it. Those conditions had Alberta Premier Rachel Notley bristling this week about delays in the Trans Mountain Pipeline expansion project and lobbying for the federal government to help boost the capacity to ship oil by rail.
Bloomberg reported earlier this month that Chinese buyers secured 1.58 million barrels of Canadian crude for shipment in September, 50 per cent more than their April purchases, and stateowned refiner CNOOC chartered the tanker Nordtulip to load in Vancouver in October.
Birn said Asian buyers want the bitumen-heavy oil in particular because their bigger supplies from Venezuela and Mexico are shrinking and “you’ve got a fire sale going on in Western Canada for exactly what they want.”
According to Bloomberg, China wants the bitumen to produce products such as asphalt and roof tar as the country anticipates increased spending on infrastructure. Alberta oilsands production hit a record 3.1 million barrels a day, estimates Calgary-based ARC Energy Research Institute, but has about 200,000 barrels a day of production that can’t be moved by existing pipelines.
That is the primary reason why Canadian oil is so cheap, Birn said, and why buyers are willing to spend money on more expensive transportation, such as rail tanker cars.
“In these circumstances, you’ve got such a depressed (price), you can cover a lot of different transportation modes,” Birn said.
Shippers moved a record 230,000 barrels a day of oil by rail for export in August, according to figures from the National Energy Board, a 60 per cent increase from January.
NEB spokesman James Stevenson said the agency doesn’t track inter-provincial shipments, so the amount of increased crude moving through B.C. is a little harder to estimate.
Birn said most of the increased oil-by-rail shipments are going to the U.S. Gulf Coast, the world’s biggest market for heavy crude oil. Asia is the second biggest market.
During a speech to a meeting of the United Steelworkers in Kamloops earlier this week, Notley said the deep discount on Canadian oil is costing the economy about $80 million a day and putting jobs, including those of the steelworkers, at risk.
“We happily let billions of dollars evaporate from our economy so that Americans can pocket (it),” Notley said in her speech. “This is just dumb.”
Notley is also pushing Ottawa to help Canadian railways expand their capacity to carry oil as a “short-to-medium-term” measure.
Birn said the steep discount to West Texas would shrink to about US$15 or $16 a barrel from the $40 or more it is now, if there was more capacity to move oil.