Spot WTI drops <$80 on new pipe, a stock surge, and paper barrels for sale
May 2, 2024
Key Observations:
Trans Mountain confirms its long-awaited crude oil pipeline expansion project formally received final* regulatory approval on Apr 30. Commercial operations commenced on May 1. In a press release, the company reports line fill is "70 percent full by volume" and "is expected to be completed within the next few weeks."
The expansion increases this Canadian crude oil takeaway capacity from 300 to 890 thousand b/d, allowing crude loaded at Edmonton to reach the Pacific coast and tankers bound for Asia. Canada accounts for 18% of our forecast global liquids production growth in 2024 and 7% in 2025.
The WCS-WTI crude oil price spread has been narrowing for the past six months in anticipation of this day. The spread now trades tighter than –$12 per bbl (and pulling WTI lower toward heavy crude cash prices) versus –$28 in Nov-2023 (chart below).
Cash WTI prices in Cushing and Midland are also slacker on incrementally lower crude export flows (–1.3 million b/d WoW) and the attendant backup in U.S. crude stocks (+7.3 million barrels WoW). 93% of that build is on the Gulf Coast, according to EIA.
Benefits: CVE, IMO, MPC, SU, PSX.
Source: Trans Mountain, EIA, CFTC, GI, Bloomberg, Blacklight Research. * "final" means "the last of the 42 Leave to Open (LTO) decisions from the Canada Energy Regulator". In the chart above, this daily version of the WCS-WTI crude oil price spread measures WCS at Hardisty versus the NYM WTI calendar monthly average (CMA) indication. Investors' longs in NYM crude oil futures and options: 82 percentile on Apr 16. Their net sales tallied to paper equivalent supply of 3.5 million b/d in the week ending April 23.
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