<article><p class="lead">Canadian heavy sour spot prices at the US Gulf coast are rising as international demand has materialized, in turn improving arbitrage economics between Canada and Texas. </p><p>January Western Canadian Select (WCS) prices in the Houston area are averaging a $10.65/bl premium to WCS prices at Hardisty in Alberta, Canada, during the Canadian trade cycle, as of 8 December — the largest premium since the March trade month. Demand from the Asia Pacific has materialized, as so far 3.1mn bl of Cold Lake are estimated on subjects to load at the US Gulf coast in December, with delivery expected in China and India, according to vesseltracking data compiled by <i>Argus</i>. As international interest in Canadian grades remains in place, US Gulf coast demand support could in turn drive more Texas imports of Canadian crude. </p><p>The last time a Canadian heavy grade was reported as a US Gulf export option was during the October load month, as part of a 2.1mn bl VLCC chartered by Unipec along with West Texas Intermediate (WTI). </p><p>Cold Lake was also offered at a roughly 25¢/bl discount to May Ice Brent for delivery to China in March last week. Refiners in the Asia Pacific favor grades like Cold Lake and WCS for favorable bitumen margins and asphalt production, and collapsed Venezuelan Merey supplies have prompted the need for substitution. Vigorous Indian demand has picked up as Canadian quality specifications become better understood abroad and as US Gulf supply reliability remains intact.</p><p>Delivered Asia Pacific prices point to growing demand for the Canadian grades. WCS cfr China is averaging a $1.51/bl premium to Basrah Heavy cfr China for January delivery, up by $1.39/bl from the average December premium. WCS cfr Singapore is averaging a $1.26/bl premium to Basrah Heavy cfr Singapore for January delivery, flipping from a delivered 12¢/bl discount on average for December delivery.</p><p>For its part, January WCS Houston is averaging a $1.41/bl discount to the CMA Nymex basis as of 8 December, which is the grade's smallest discount to the basis since the March trade month.</p><p>In Canada, heavy crude production had started to stall in September as Imperial Oil's 240,000 b/d Kearl mining site in northeast Alberta experienced a two-week upset to its diluent supply. Heading into the colder winter months, Canadian producers strive for strong production. Little maintenance activity and signs of that have already showed up in October data.</p><p>Heavy crude production in Alberta rose to 1.9mn b/d in October, near the 2020 high of 2mn b/d posted in February. A rebound in pricing has prompted more operators to open the taps, including the 194,000 b/d Fort Hills joint venture between Suncor, Total and Teck. A province-wide curtailment order was all-but-removed starting in December, giving producers more certainty, but that has meant demand for export pipelines has started to heat up.</p><p>As available pipeline space becomes tighter, pressure on prices in Albertan hubs starts to mount. So long as those outright prices remain above break-even levels, pipeline-alternative crude-by-rail economics begins to look more attractive and has still been useful in clearing those volumes to the more lucrative US Gulf coast market and beyond.</p><p class="bylines"><i>By Alex Endress and Brett Holmes</i></p></article>
