Crude Oil Markets 2012 – The Times They Are a Changing

Yesterday I attended the Argus Americas Crude Summit in Houston.  Throughout the day the same theme kept repeating – “The times they are a changing”.  Not only is the crude oil market trying to digest the implications of rapid growth in U.S. light-sweet crude and condensate production, it is also dealing with the Canadian oil sands saga, production growth across Latin America, new U.S. heavy crude conversion capacity, escalating Chinese demand, uncertain pipeline development schedules, the expanding role of rail transportation, the shut-down of East Coast refineries…. The list goes on.  There was no shortage of topics for the presenters. In this blog I’ll summarize the high points of several of the most interesting presentations.  Several speakers talked about condensates, so I will highlight that topic here.

Joe  Leto, EAI – 45 degrees API is the generally accepted dividing line between condensates and crude.  The markets for condensates are (or can be) quite different from crude markets.  From half to two-thirds of Eagle Ford crude is really condensate, with an API from 45-60, or higher.  Some is being blended.  Some moved to Corpus Christi and ultimately to Beaumont. 

Matthew Goitia, Standard Chartered – (a) as new pipelines increase capacity to move inland volumes to coastal markets, significant barrels will bypass Cushing.  Perhaps a more defined Houston Ship Channel trading hub could replace Cushing as the primary reference point for crude oil prices.  If not Ship Channel, how about St. James?  (b) Condensates can be used as a diluent for Canadian oil sands production, blended off into crude streams, or taken to splitters.  There may be a need for more splitter capacity. 

Skip York, Wood Mackenzie – (a) Eagle Ford production is far in excess of Corpus Christi refining capacity, so the incremental production must ‘slide toward Houston’.  (b) Only three U.S. East Coast refineries survive.  The refineries that are shutting down will probably not reopen.  Their owners have been trying to save them for too long, and the economics just aren’t there.  (c) As light sweet crude oil production continues to grow, there will be enough excess supply that ends up on the Gulf Coast to justify exports.  But crude exports are illegal (unless you have a special exemption, like ANS).  However condensates (over 50 degrees API) are OK to export.  And you don’t need a splitter to do it.

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