A key US Gulf of Mexico offshore pipeline is expected back online in mid-January, but the impact of its nearly five-month shutdown on medium sour crude could linger.
Genesis' Cameron Highway Oil Pipeline System (CHOPS) outage has pushed crude away from Texas and prompted more volumes in Louisiana, weighing on medium sour prices there and lending itself to exports. Additionally, the crude that typically goes into CHOPS as Southern Green Canyon (SGC) is slightly heavier and more sour, tweaking the stream qualities for Poseidon and Bonito.
Because of the increased volumes of sour crude going to Louisiana, and the slightly heavier and more sour crude being put into the Poseidon and Bonito streams, Louisiana crude discounts have been deeper to SGC market discussion. The resumption of the CHOPS pipeline will likely help rebalance that.
But some of the production that has shifted could continue to be shipped into the Louisiana streams as new buying relationships may have been formed. Although it seems more likely that the majority of the impacted crude will return to flow into the CHOPS pipeline, it may also not all happen immediately. The potential for quality to remain impacted in Louisiana may also lead some buyers to discount crudes until they are able to see more consistent quality return.
Going forward there are other factors that keep the two markets bifurcated. Medium sour crude is more easily exported from Louisiana, especially Mars from LOOP, providing support when arbitrage economics are favorable. Bonito is also often a component for blending into Light Louisiana Sweet (LLS), so when light sweet stocks are high, Bonito is already pressured in line with LLS.
A shift in ASCI make up
The reduction of SGC spot trade activity, alongside increased trade for Poseidon and even Mars has resulted in Argus' ASCI benchmark being more skewed toward the Louisiana delivered crudes, and consequently has changed the fallback ratios for its assessment when there is insufficient daily reported spot trade volume in the three grades that comprise ASCI.
When reported trade for Mars, Poseidon and SGC fall below 6,000 b/d on a given day, the assessment applies the fallback ratios to the individual assessments. The ratios reflect the prior six trade months and are updated every three months. So the impact of reduced SGC spot trade activity will be felt for some time on days with insufficient volume reported. In the January trade month, 15,357 b/d have been reported to trade against the Cushing benchmark. Only 1,500 b/d were reported for December. This means the impact of lower liquidity months will be felt in the ASCI fallback ratios until at least the September trade month of next year.
It could also take a while for SGC deliveries to be made to "payback" crude purchases during the time CHOPS has been down, which could further limit the spot market activity for SGC even after CHOPS returns.
It is likely some of the Poseidon impacted by the pipeline flow adjustments has made its way into the LOOP Sour cavern, as Poseidon, Mars and Iraqi Basrah, Arab Medium and Kuwaiti imports are eligible into the mix. In November, LOOP Sour deliveries from the cavern did show a slightly lower API gravity and slightly higher sulfur content than deliveries had in prior months, according to information on the LOOP website. And it could take some time for recent deliveries to turn over the crude in storage.
