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Western Canadian Select crude on USGC hits weakest level since February 2018

Houston — Heavy Canadian crude on the US Gulf Coast was heard to trade Tuesday morning at its weakest value since February 16, 2018, amid strong freight rates that negatively affect the competitiveness of USGC export crudes.

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Western Canadian Select on the US Gulf Coast was heard to trade at a $6.25/b discount to the front-month NYMEX light sweet futures contract calendar-month average (WTI CMA) Tuesday morning, the weakest value for the grade since February 16, 2018, when it was assessed at a $7.15/b discount.

Cold Lake Blend, which sources have said often trades at parity with WCS on the USGC, was also heard to trade at a $6.25/b discount to the WTI CMA Tuesday morning, down $1.90/b from the value at which the grade was heard to trade at the beginning of October.

Sources say high freight rates are the cause of the weakening. Freight rates have skyrocketed in recent weeks, with the assessed rate for a VLCC sailing from the USGC to China more than doubling since the start of September from around $3.40/b for crude with an API gravity of 21, to $7.06/b on Monday.

As new pipeline connections from the Permian Basin bring more crude to the Gulf Coast, and as refinery inputs remains relatively stable, the international market is the natural outlet for the marginal barrels.

Due to this, export competitiveness impacts differentials for crudes on the USGC, and as such competitiveness is weakened by higher freight rates, pressure is exerted on values.

In addition, increasing amounts of Canadian crude have been reaching the USGC by rail. Data from the US Energy Information Administration show July crude-by-rail shipments from Canada were the second highest on record at 6.25 million barrels. Only January saw more Canadian crude move by rail to the USGC, when 6.30 million barrels shipped.

According to an average of the most recent assays seen by S&P Global Platts, WCS has an API gravity of around 21, and around 3.59% sulfur content. Cold Lake Blend has an API gravity around 19.2 and around 4.01% sulfur content, according to Platts data.

--Kristian Paris Tialios, kristian.tialios@spglobal.com

--Edited by Keiron Greenhalgh, keiron.greenhalgh@spglobal.com

2nd Annual North American Crude Oil Exports Summit | October 28-30, 2019 | Houston, Texas

The summit sets a unique global agenda, inviting international buyers and North American producers, midstream participants and ports to examine the changing dynamics of US crude quality, connectivity, pricing and new markets.

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