Canadian oil finding a way to Gulf refineries replacing oil from Venezuela

Bloomberg/Fuel Fix:
A price war is brewing between Canada and Latin America over who will satisfy U.S. Gulf Coast refiners’ hunger for heavy oil.

The new Seaway Twin pipeline will almost double the amount of heavy Canadian crude coming to Gulf terminals and plants to about 400,000 barrels a day starting in January, according to Calgary-based based ARC Financial Corp. The shipments are growing even without the Keystone XL pipeline, which has been delayed for six years because of environmental opposition.

The Canadian supply will square off against crudes from Mexico and Venezuela that have traditionally fed refineries along the Texas and Louisiana coasts. State-owned Petroleos Mexicanos widened its discount for U.S. buyers in December by the most since August 2013. Valero Energy Corp. and Marathon Petroleum Corp., which invested in special equipment to refine heavy crude, stand to gain the most from the Canadian supply.

“Something’s going to have to give,” said Ed Morse, Citibank’s head of global commodities research in New York. “It’s going to have to be combination of Latin American countries exporting less into the U.S. or Canadian crude being re-exported and competing with crudes in other markets, particularly Europe.”

New pipelines and rail terminals enabled more Canadian oil to head south to higher-value markets, partially offsetting a 48 percent collapse in global prices since June as the Organization of Petroleum Exporting Countries refused to cut production to counter a global glut.

The discount of Western Canadian Select priced in Hardisty, Alberta, to Mexico’s Maya crude has narrowed this year by more than half to $11 a barrel. Heavy Canadian crude will cost the same in Houston as Maya arriving by tanker, including the cost of transportation, according to data compiled by Bloomberg.

Pemex widened the discount it gives U.S. buyers of Maya to $3.70 a barrel in January, from 90 cents in November. Pemex spokesmen didn’t respond to several e-mails requesting comment on the company’s market strategy.
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Cutting off Venezuelan shipments makes the most sense.  The hostile socialist government of Venezuela uses its oil to support other regimes hostile to US interests.  Completely replacing it with Canadian crude would be a strategic win for US interests.  I suspect the Mexican crude will still be purchased too making US imports more from North America.  As US production increases the Canadian crude can be sipped to other countries from Gulf ports.

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