Daily Blog

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.

Daniel Brusstar, CME – The crude market is looking at additional quality specifications for common crude streams like WTI to include metals, acid number, and other specs.

Jamie Brito, PFC Energy – Coking capacity in China is up 40%, nearing the coking capacity of the U.S.Gulf Coast, increasing China’s appetite for heavy crude.  So China could be a home for Canadian oil sands production that can make it to Kitimat, BC on Enbridge’s Northern Gateway project (assuming it gets built).   So it is a viable alternative for a portion of oil sands volumes if Keystone XL ultimately dies.

In response to a question – Canadian heavy crude into the Gulf Coast would replace overseas imports of heavy crude, most likely from Venezuela.  (RB – thus Keystone XL would not be adding to heavy crude runs, just replacing Venezuela barrels with Canadian barrels. Then presumably, the excess Venezuela barrels would go to China.  BTW, the shutdown of the Hovensa Virgin Islands refinery owned by Hess Corp. and Venezuela’s PDVSA will throw even more heavy crude on the market.)

This is enough for one blog.  I’ll recap more of the presentations in postings next week.