Spot trade of arbitrage heavy Canadian crude to Asia has picked up pace ahead of the commencement of Canada’s Trans Mountain Expansion pipeline on May 1, amid tightening global supply of heavy crude grades.
To date, at least four Aframax cargoes of high TAN, heavy sour Canadian crude were heard sold to China’s Sinochem, PetroChina and Unipec for June delivery, according to trade sources April 10.
Of this, the last three cargoes were sold at discounts of $4-$5/b to ICE August Brent futures on a delivered basis. These are up from a discount of $5-$5.50/b for the inaugural Access Western Blend cargo sold in late March to Sinochem by Canada’s Suncor Energy, S&P Global Commodity Insights reported previously.
Some market participants however hold a cautious view on arbitrage economics for the grade, with one raising the potential redirection of more volumes to the US West Coast rather than to Asia.
“I don’t think that there would be many TMX barrels that would come to Asia, especially now that Mexico has reduced their exports of its Maya heavy crude,” a China-based independent refiner said. “The US, which is a frequent user [of Maya] would likely absorb the TMX barrels to make up for the deficit,” he added.
Mexico’s state-owned Pemex was heard cutting some of the supply of Maya crude to a few refiners in the US, Europe and Asia, as it looks to redirect the volumes back to its domestic refineries, causing differentials for heavy crudes in the US Gulf Coast to strengthen.
Nonetheless, another trader noted that the startup of TMX “would likely save some logistical cost as an Aframax cargo would take around 25 days to come to Asia compared to 50 days if one was to load from the US Gulf Coast.”
Additionally, TMX barrels heading to Asia comes amid a tightening of overall supply of Middle Eastern heavy sour crude for a second consecutive month in May. This is underscored by lower-than-usual volumes of Arab Medium and Heavy grades under Saudi Aramco’s May allocation.
Iraq’s SOMO has also raised the official selling price differentials for its May-loading crude oil bound for Asia, Europe and the US, according to a pricing notice April 8.
For Asian buyers, SOMO set the differential for May-loading Basrah Medium at parity to the average of Platts Oman/Dubai assessments in that month, up from a discount of 60 cents/b in April. Basrah Heavy was set at a discount of $3.20/b to the same average, up 80 cents/b on the month.
TMX pipeline to commence ahead of schedule
The 590,000 b/d TMX crude oil pipeline, which will provide additional egress capacity from Edmonton, Alberta to Burnaby, British Columbia and give Canada the opportunity to access international markets, is set to start commercial operations on May 1, nearly a month ahead of schedule.
As a leading heavy oil producer, Cenovus is a major shipper on TMX with 144,000 b/d, or nearly 24% of total pipeline capacity.
The nine other shippers on the pipeline — BP, Canadian Natural Resources, MEG Energy, ConocoPhillips Canada, Imperial Oil, Marathon Petroleum, Parkland Refining, PetroChina and Suncor — have committed to take 80% capacity under 15-20 year deals.
The remaining 20% volume is reserved for spot shipments, under norms mandated by the Canada Energy Regulator.
Following startup, it will likely take six to nine months for crude volumes to be ramped up on TMX, Enbridge has said, citing its experience from the Line 3 startup.
Canada’s Cenovus Energy is aiming to export between 35% to 40% of its capacity on the Trans Mountain Expansion pipeline to refineries in California on the US West Coast, with the remaining volumes being shipped to the US Gulf Coast and Asia, CEO Jon McKenzie said April 9.
Source: Hellenic Shipping News
