​Harvey hits Canada with heavy oil refineries shut

Tropical Storm Harvey is being felt thousands of miles to the north as shutdowns of U.S. Gulf Coast refineries hurt prices for the Canadian oilsands crude they’d normally process.

Since Friday — when Hurricane Harvey first struck Texas — Western Canadian Select’s discount to West Texas Intermediate futures expanded as much as 19 percent to $11.75 a barrel on Wednesday. That marks the biggest discount since March.

The widening discount is being driven by shutdowns of Gulf Coast refineries that oilsands producers have increasingly relied upon to process their crude as well as the suspension of service on TransCanada Corp.’s Marketlink pipeline that can deliver Canadian crude to the Texas coast.

New pipelines and rail capacity helped Canadian oil producers quadruple their exports to the Gulf Coast over the past four years, with the total reaching 412,000 barrels a day in May, Energy Department data show. Harvey shut about 4.4 million barrels a day of refining capacity, almost a quarter of the U.S. total, as it plowed through Texas and western Louisiana.

“There were increasing volumes going down the Gulf, and now you have taken down that demand center,” Kevin Birn, a director at IHS Energy in Calgary, said by phone. “It comes down to how long those facilities are down.”

Western Canadian Select strengthened on Thursday, with the discount to futures shrinking 50 cents to $11.25 a barrel, data compiled by Bloomberg show.

At the same time, U.S. condensate shipments from the Gulf Coast have been curtailed by the closure of lines belonging to Explorer Pipeline, reducing supplies of the material that oilsands producers use to dilute their bitumen so it can flow through pipelines. U.S. condensate accounts for about a third of the diluent that Canadian oilsands producers use, Birn said.

Explorer on Wednesday halted shipments on lines that carry light condensate from the Texas coast as far as Manhattan, Illinois, spokesman Dolin Argo said in a phone interview. From Manhattan, Enbridge Inc.’s Southern Lights line transports the condensate as far as Edmonton, Alberta.

Edmonton condensate’s premium to West Texas Intermediate futures grew to $1.70 a barrel Thursday, the widest since January 2016, data compiled by Bloomberg show. The rise may reflect an anticipation of reduced imports, Birn said.

The extent of Explorer’s impact “comes down to how long that pipeline is down,” he said.

© 2017 Bloomberg L.P

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