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Canadian heavy pipeline crude oil drifts lower amid increased storage, rail drop

Highlights

Canada's benchmark heavy pipeline crude drifted to the lowest in six sessions Thursday as the market digested news of additional storage tanks in Alberta, an anticipated drop in crude-by-rail volumes and insight into how much crude has flowed on the Keystone Pipeline after a temporary shutdown and restart in November.

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Crude-by-rail exports out of Canada dropped 11.3% in January from the previous month to 140,959 b/d, according to the latest statistics from Canada's Crude Oil Logistics Committee. Analysts had said they expected volumes to be flat or down in January after Canadian rail operators and clients reported delays due to extreme weather.

Producers are counting on increased crude shipments by rail to alleviate inventories in Alberta after the temporary shutdown of TransCanada's Keystone Pipeline on November 16 led to a selloff that saw differentials for Western Canadian Select at Hardisty widen from around WTI CMA minus $14/b to a four-year low of WTI CMA minus $30.55/b on February 5. WCS at Hardisty on Thursday was assessed at WTI WMA minus $27/b.

The 600,000 b/d Keystone Pipeline restarted on November 28 at reduced pressure, as mandated by the US pipeline regulator. TransCanada has declined to say what that reduction in pressure has meant for crude flows, but data from Canada's National Energy Board shows the company has the capability to run at normal volumes under the current restrictions.



The Keystone Pipeline operated at 565,000 b/d in October, dropped to 298,000 b/d in November and then rebounded to 582,000 b/d in December, NEB data show.

Throughput volumes in January are expected to be similar to the previous month, indicating that TransCanada is able to work around the pressure restrictions, said Kevin Birn, a senior analyst with IHS Markit.

"The word out there is volumes in February and March will be lower, as TransCanada is carrying out a full integrity check on Keystone," he noted.

TransCanada spokesman Terry Cunha reiterated Thursday that the company doesn't comment on "day-to-day commercial deliveries."

Meantime, news of additional storage capacity in Alberta added perspective to the extent of oversupply. A joint venture between Kinder Morgan and Canadian midstream operator Keyera Energy has begun operating the initial stage of its Base Line Terminal in Edmonton, designed to store a total of 4.8 million barrels.

Kinder Morgan said in a statement Tuesday that two additional tanks became available head of schedule, adding to four tanks that entered service in January. The two tanks add 800,000 barrels of storage to the 1.6 million barrels already installed, according to the statement.

The additional storage is unlikely to affect Canadian heavy crude differentials, one trading source said Thursday.

"It was expected," the source said. "And frankly it's not a lot of volume."

--Pat Harrington, patrick.harrington@spglobal.com
--Ashok Dutta, ashok.dutta@spglobal.com
--Edited by Richard Rubin, richard.rubin@spglobal.com