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Wednesday, November 21, 2012

Canadian Natural Resources Sees WTI Discount Disappearing

My latest Seeking Alpha article:


WTI or light oil pricing has been under pressure relative to Brent and LLS due to the pipeline bottlenecks at Cushing and the rapidly growing light oil production in the U.S. and, to a lesser degree, in Canada. The Cushing bottlenecks are well on the way to being removed. C will be expanded to 400,000 barrels a day of takeaway capacity in Q1 2013 and 850,000 barrels a day in Q2 2014. Plus, the Keystone Cushing market link will add 700,000 barrels a day of capacity by Q3 2013. As a result, we expect to see WTI to LLS differentials narrow to essentially a transportation cost between Cushing and the Gulf -- about $5 a barrel.
Currently, there's about 500,000 barrels a day of imported light into the Gulf, and there are some concern that North American light oil production will continue to grow to the point that it pushes all these foreign barrels out, causing the WTI to Brent differential to again widen. However, we need to remember that light can be blended with heavy to produce a medium crude look-alike and compete for the medium crude oil refining capacity on the Gulf Coast. And today the Gulf imports about 1.5 million barrels a day of medium crude. There's also 2 million barrels of light oil refinery capacity on the East Coast of Canada and the U.S. Today, there are significant real infrastructure being built to displace these 2 million barrels a day of foreign imports with North American light oil. And longer term, there's likely going to be a pipeline access for Canadian heavy oil -- or Canadian oil -- light oil and heavy off both the West and East Coast. However, they face their own regulatory and stakeholders challenges.

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