Something odd is afoot in the North American crude markets.
Previously I mentioned some strange shipments of crude taking place lately here. Like eastern Canadian White Rose oil going all the way to India for the first time ever.
Or Colombian oil being sold to Italy. Another first for the market. (Previously, such crude often went to the U.S.)
Now, a third mysterious shipment has emerged in as many weeks. This one from rural Alberta to Singapore.
Platts reports that Shell shipped Cold Lake heavy crude to the port of Vancouver on the Canadian west coast. And then loaded an Aframax tanker for delivery to Singaporean buyers.
Traders noted this is another first for the global crude markets. Singapore has never before purchased the Cold Lake blend.
So why is crude sailing to so many odd places recently?
The answer appears to be related to one factor: surging U.S. supply.
Oil output from American shale plays like the Eagle Ford and tight oil basins like the Bakken is exploding. With this new supply displacing several crudes that used to be shipped primarily to U.S. buyers.
Including a number of Canadian blends. The U.S. used to the be the go-to market for this oil. But today it simply can’t compete with domestic supply.
We can see evidence of this phenomenon in today’s oil prices. Ample North American oil supply is causing prices on the continent to drop relative to global crudes. That’s the reason WTI crude is selling for $98 per barrel, while European Brent goes for more than $110.
Canadian prices are fairing even worse. Benchmark crude Western Canada Select is going for a meagre $71 per barrel today. And heavy crudes like Cold Lake sell at a discount to that price.
But unlike American producers, Canadian oil firms are allowed to export crude. And they are do so–seeking better pricing in international markets.
The question is: what will happen to American oil? Prices for U.S. Gulf Coast blends like Louisiana Light Sweet are dropping versus Brent. Something that never happened during previous falls in the WTI price.
Signalling that crude may be piling up in all corners of the U.S. now. Potentially meaning that un-exportable U.S. oil is going to sell at a discount to international prices for the foreseeable future.
Something to keep in mind for our energy investments the next while.
Here’s to the Cold Lake conundrum,
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