Data shows that Canadian exports of lighter crude by water to the U.S. West Coast are up since the Trans Mountain expansion pipeline (TMX) started operating in May. This has surprised some market participants, who had thought the TMX would be primarily used to ship heavy crude from Canada to Asia and California. This increase in Canadian crude oil flowing into the U.S. has displaced imports from Latin American nations. The U.S. is the largest customer of Canadian oil exports. Data from trade analysis group Kpler shows that waterborne imports of sweet and light synthetic crudes into the U.S. West Coast increased to almost 100,000 barrels a day in September, up from just 7,000 in June. This was the first month the Trans Mountain expansion pipeline had been operational.

Rory Johnston of Commodity Context, a newsletter that tracks commodity prices, believes the recent surge in imports was likely fueled by lower prices for synthetic crude. This is the main component of Canadian light grades purchased by U.S. refiners. Johnston said that synthetic crude traded at a half cent per barrel premium to West Texas Intermediate futures during the summer months and into September. This was down from $4 in April.

The barrels transported by tankers will be added to the 240,000 barrels per day (bpd) that are imported into Washington State via the Trans Mountain Puget Sound pipeline, an offshoot from the main pipeline which can transport up to 890,000. bpd crude oil from Alberta to Canada’s Pacific Coast. The Puget Sound Pipeline is scheduled to be closed for seven days for planned maintenance in mid-November.

Johnston said that the increased imports could be due to the fact that the barrels shipped through Puget Sound tend to be lighter grades.

GAINING MARKET SHARE

Medium-sweet barrels imported from Argentina and Brazil are also other crude grades that U.S. West Coast refining companies have traditionally imported. Matt Smith, a Kpler analyst, said that Canada's higher export capacity helps it to displace these barrels, and gain market shares on the U.S. West Coast.

Smith stated that "since the TMX expansion began, Canadian barrels has been the leading waterborne supply to Washington refineries for July, August, and September - as well as so far in October."

A Calgary-based trader stated that U.S. West Coast refining companies also view Canadian light crude oil as a viable alternative to the medium-sour Alaska North Slope Crude.

The trader added that the demand for light crude barrels to be traded on TMX exceeded expectations of market participants.

It's not as heavy on the expanded line. It was expected and it was true for the first few months, but now it is lighter.

Ship tracking data indicates that 14 crude oil shipments have been transported from Vancouver to Washington since Trans Mountain began operating in May. The busiest month was September with four shipments.

The shipments went to Ferndale and Anacortes, where Phillips 66 and Marathon Petroleum have refineries, and Puget Sound is home to HF Sinclair and Phillips 66.

Phillips 66 & Marathon have declined to comment about their crude purchasing operations. HF Sinclair didn't respond.

(source: Reuters)