Louisiana lures replacement crude after Ida

US medium sour Mars crude has been insulated from much of the disruption caused by Hurricane Ida in late August.

November supplies of Mars have traded $1.50/bl below US benchmark WTI this month, a fall of more than 80¢/bl from the previous trade month. Refiners are turning to alternative US and imported crudes as well as deliveries from the Strategic Petroleum Reserve (SPR).

Some offshore production has returned since damage at Shell's West Delta 143 facility in the Gulf of Mexico in August forced operators to shut in around 240,000 b/d of crude that feeds the Mars stream. Shell on 4 October announced that it had restarted its Olympus platform. But the Mars and Ursa platforms remain shut. Over 100,000 b/d of Mars traded for October delivery, the lowest monthly tally since Argus began weighted-average pricing for the grade in 2006.

Domestic grades are filling a portion of the Mars shortfall. The medium sour Poseidon stream is still flowing to Louisiana. And refiners can take more Thunder Horse, a slightly lighter sour crude that also comes onshore in Louisiana. BP recently added 25,000 b/d of oil equivalent of production at its South Expansion Phase 2 project, which feeds the Thunder Horse platform.

Sour crude imports have also been rising to plug the supply gap. More Russian medium sour Urals is moving to the US. Trading firm Glencore and US independent refiner Valero together loaded 1.5mn bl of the grade at ports on Russia's Baltic coast last month. The two cargoes are on course to discharge at the Louisiana Offshore Oil Port (Loop) just after mid-October, fixture data from analytics firm Vortexa show.

US refiners may also be counting on extra Opec crude exports. The US has been importing roughly 400,000 b/d of Saudi crude since May. A recent 10¢/bl drop in almost all of Saudi Aramco's formula pricing for November-loading cargoes to the US will encourage some term buyers to ask for more volumes.

Refiners could consider blending light sweet crude with heavy sour supplies from Canada, such as WCS, to produce hybrid grades that mimic Mars. Some firms on the Texas coast used this tactic to replace medium sour Southern Green Canyon in 2020 when storm damage caused an outage on the Chops pipeline system. WCS prices do not suggest a strong surge in demand. The Houston market is trading roughly $4.50/bl below the WTI benchmark, little changed from before the arrival of Ida.

Lost Mars

The US is also making supplies available from the SPR that can replace lost Mars production. It finalised the sale in September of 20mn bl of sour crude from the SPR for delivery during the fourth quarter (see table). Several SPR loans have been distributed in the Louisiana market, including 3mn bl to ExxonMobil's 500,000 b/d Baton Rouge refinery.

A number of Louisiana refiners are still recovering from storm damage and preparing to restart. Refiners shut in more than 2mn b/d of capacity in Louisiana in the immediate aftermath of the storm. While most facilities have restarted, Shell's Norco complex and Phillips 66's 250,000 b/d Alliance refinery in Belle Chasse have struggled to resume output amid partial flooding and power outages. Norco is targeting a start date in mid-October, while Alliance has been working through a post-storm assessment phase. The refineries tend to favour light sweet Gulf coast crudes and the ongoing shutdown of these plants could help free up supplies of light sweet crude for blending with heavier grades to create a medium sour alternative to Mars.

By Alex Endress