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NEW YORK, Sept 20 (Reuters) – U.S. refiners are expected to buy more Canadian oil after the Biden administration ends Strategic Petroleum Reserve (SPR) releases this fall, traders said, adding it is expected drive up the price of a Canadian barrel all at once. of tight global supply.
The upcoming end of SPR releases could again alter market dynamics in a year of high volatility following Russia’s invasion of Ukraine in February. In March, the White House announced it would release 180 million barrels from the US strategic reserve to help rein in high prices.
The rejections weighed on the price of Western Canada Select (WCS), the benchmark Canadian heavy grade. This oil, because it has qualities similar to the sour crude that dominates US reserves, traded around $20 a barrel below US West Texas Intermediate (WTI) crude for much of the summer. In 2021, the average WCS rebate was $12.78 per barrel, according to the Alberta Energy Regulator. Read more
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WCS’s discount to WTI is expected to shrink as SPR’s supply dwindles, market sources said.
“Once that overhang passes, and it may not be in the fourth or first quarter, but in the second and beyond, we should see a much stronger differential than where we are now,” said said a trader. He added that he expects WCS to trade in Alberta around $14 or $15 a barrel under WTI next year, down from around $21 currently.
However, increased production of medium sour crude from OPEC countries such as Saudi Arabia, as well as the discounted Russian Urals, could keep this gap wider, according to RBN Energy.
Canadian exports of U.S. Gulf crude have fallen in the past two months, falling to around 130,000 barrels per day (bpd) in July and August, below last year’s pace of 200,000 bpd, said Matt Smith, principal oil analyst for the Americas at Kpler. . Foreign buyers have turned to discounted Russian barrels, which has slowed Canadian crude exports.
“It’s a bit of a game of musical chairs,” Smith said. “When the SPR releases are complete, these refiners will look to rely more heavily on Canadian barrels or seaborne imports again.”
Some market participants are concerned that the limited capacity of pipelines between Canada and the United States could cause bottlenecks. This could lead to a glut in the Alberta hub, which in turn could lower prices there.
Canada reached record production of 5.5 million barrels of oil per day in 2021, according to the U.S. Energy Information Administration, and is expected to reach 5.7 million bpd this year.
Enbridge Inc
Allocation fell sharply last year when the Line 3 pipeline expansion opened and came to a complete halt from March to July, but Enbridge has since resumed rationing capacity on its mainline. Crude deliveries to the Kerrobert, Saskatchewan hub were split 2% in August and 6% in September, Enbridge said.
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Reporting by Stephanie Kelly and Nia Williams; Editing by David Gregorio
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