A narrow WTI/Brent spread has pushed Syncrude to the deepest discount to WTI in more than a year, but changes in regional supply and demand could leave the premium grade permanently weaker.
Syncrude fell during the December trade cycle (1-16 November) to remain competitive as the WTI/Brent spread narrowed. During December trade the grade maintained an average discount of $2.01/bl to WTI, the deepest discount since September 2015 trade. At the same time, the prompt WTI/Brent spread averaged just $1.21/bl in November — the narrowest spread since June.
But supply and demand changes may pressure Syncrude into the long term.
Canadian Natural Resources Limited (CNRL) brought the 45,000 b/d Phase 2B expansion to its Horizon oil sands upgrader online during the third quarter, boosting the facility's nameplate capacity to 182,000 b/d. And to the southeast, Western Refining completed upgrades during the fourth quarter to the No 2 crude unit at its 92,000 b/d refinery in St Paul Park, Minnesota. This enabled it to reduce purchases of synthetic crude oil (SCO) and in turn curb overall Midcontinent demand for synthetic crude. The company planned to install a second desalter to increase the range of crudes that the refinery can process.
The St Paul Park refinery had increased runs of SCO to 18,769 b/d in the third quarter from 14,735 b/d during the third quarter of 2015.
The resulting excess light volume may be blended into a new grade. Enbridge told shippers on 12 September that it would accept a new Canadian Heavy Sweet (CHS) blend — a blend of existing heavy and sweet streams — on its Mainline system beginning on 1 November. The company said during its second quarter results that it was working to boost heavy crude takeaway capacity from western Canada by 60,000-80,000 b/d.
Enbridge will ship the new grade on its 390,000 b/d Line 3, which has historically been reserved for light grades, to ease demand for space on heavy lines Line 4 (796,000 b/d capacity) and Line 67 (800,000 b/d), which are consistently oversubscribed.
Shippers have not yet nominated CHS shipments to the Enbridge Mainline system, but producers could face greater incentives to blend and sell it if heavy apportionment remains high and Syncrude prices remain weak.
Syncrude fell on 1 December to the deepest discount to WTI since 31 August 2015. In addition, its premium to conventional light, sweet grade Mixed Sweet Blend (MSW) — to which Syncrude typically holds a substantial premium on the basis of yield — fell to the lowest level since 26 August 2015.
