Export interest buoys heavy North American grades

North American sour crudes are benefiting from rising Asia-Pacific demand amid tight sour crude supply globally.

Heavy sour Canadian grades have risen in the Houston market as more of the country's crude departs from the Gulf coast bound for India and China. January WCS priced in Houston has risen to a premium of more than $12.50/bl to WCS priced at Hardisty in Alberta — a 10-month high (see graph).

Asia-Pacific refiners have turned to Canadian crudes as Opec+ production cuts and sanctions targeting Venezuela and Iran limit heavy sour crude supply, including Venezuela's Merey grade, which is popular with Chinese and Indian buyers.

Refiners in Asia-Pacific take Canadian grades such as heavy sour Cold Lake and WCS for their high bitumen yields. So far, 100,000 b/d of Cold Lake is scheduled to load at the Gulf coast in December for delivery to China and India, according to vessel tracking data compiled by Argus. The shipments include two 500,000 bl Cold Lake cargoes that were scheduled for 10-12 December and 15-17 December loading at Nederland, Texas. The last time a Canadian heavy grade was recorded as a US Gulf export option was during the October loading month.

Indian demand has picked up as refiners become more familiar with Canadian crudes and as plants increase throughputs to meet rebounding demand following the easing of Covid-19 restrictions. Indian state-controlled refiner IOC recently issued a tender seeking 2mn bl of crude for 24 January-2 February delivery. Eligible Canadian heavy sour grades included Access Western Blend, WCS, Cold Lake, Christina Lake Dilbit and Kearl. Canadian crude was also available for export in January after ExxonMobil issued a tender to sell 500,000 bl of heavy sour Kearl to load at the Texas coast next month.

Delivered Asia-Pacific prices point to growing demand for Canadian grades. WCS for January delivery to China is averaging a $1.40/bl premium to Iraqi Basrah Heavy, up by nearly $1.30/bl from December (see graph).

WCS Houston's strength relative to Alberta also indicates high Gulf coast demand for Canadian crude. Gulf coast refiners prize heavy crudes as they have invested in cokers and other expensive facilities to process the grades. These refiners are facing tough competition for heavy crude globally, amid falling supply from Mexico and Venezuela and Opec+ production cuts.

Chops away

More US Gulf medium sour crude supplies from Louisiana are heading overseas as a pipeline shutdown diverts shipments to the region. The shutdown of the Cameron Highway Oil Pipeline System (Chops) in August because of hurricane damage to a platform has rerouted crude from Texas to Louisiana. Flows that had been going through the Chops system are now being delivered either as Poseidon or Bonito Sour in Louisiana. The extra Bonito Sour has spurred producers to offer the traditionally illiquid grade in the international market. A 2mn bl cargo was offered at a roughly $1.20/bl premium to Ice May Brent on a delivered basis to China for March arrival.

Prompt Louisiana sour Mars prices have also been put under pressure from the increase in supply, leading to exports. Argus estimates that at least 2mn bl of the grade left the Gulf coast for China in November. Delivered Asia-Pacific Mars prices have firmed to a premium of nearly $2.50/bl to Iraqi Basrah Light cfr China for January, up by $1.15/bl from the average December premium.

Indian refiner HPCL also issued a tender specifically seeking 1mn bl of Mars for 15-31 January or 10-25 February delivery, diverging from its traditional US import grades of WTI and Wyoming Sweet.

By Brett Holmes and Alex Endress

Canadian crude imports to Texas ’000 b/d

Company-level Canadian crude imports to Texas ’000 b/d

WCS vs Basrah Heavy delivered China

WCS Houston vs WCS Alberta