The delivered cost of sending Western Canadian Select crude from the US Gulf Coast to a European refinery shows the re-export arbitrage for the grade is almost always profitable, even if obtaining a license to do so remains challenging.
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Repsol purchased a 500,000-600,000 barrel cargo of the 20.6 API and 3.37% sulfur WCS for delivery to Spain Wednesday, according to trading sources, in what is believed to be the first re-export of Canadian crude from the USGC to a non-US port. The US government tightly controls any crude exports, including of non-US grades.
Repsol has five refineries in Spain and at least three facilities have cokers, which would make a likely destination for the WCS cargo. While many European refiners have shuttered facilities due to poor margins, Repsol has been one of the few to invest heavily in upgrades such as adding coking capacity.
Both the 120,000 b/d Coruna and the 220,000 b/d Bilbao, or Petronar, facilities -- both on the Atlantic Coast, have cokers. The 220,000 b/d Cartagena refinery, on the Mediterranean, also has a coker.
Platts data shows the delivered cost of sending WCS to a Mediterranean refinery was around $91.22/b Wednesday, based on the most recent assessments, while that for sending the crude to a refinery in Northwest Europe came in around $91.26/b. On a 30-day moving average, Mediterranean delivered costs come out to around $92.79/b, and NWE costs come in around $92.83/b.
The delivered cost includes the cost of shipping WCS to the USGC via pipeline, plus the Platts assessment for a Mediterranean/UKC-USGC VLCC route. As this would be a backhaul voyage, freight from the USGC to Europe could often be cheaper than the Platts assessment.
This compares favorably to the delivered cost of Russian Urals. An FOB Urals cargo, basis 80,000 mt, delivered to a Mediterranean refinery would cost a refinery around $106.60/b, Platts data showed Thursday. The 30-day moving average pegs this cost around $106.97/b.
Urals costs a NWE refiner a bit less, with the 30-day moving average coming in around $106/b Thursday for an FOB cargo, basis 100,000 mt.
But WCS also needs to remain competitive with similar Latin American grades like Colombia's Castilla Blend. Castilla delivered to the Mediterranean on a VLCC would have cost a refiner around $98.17/b Wednesday, based on the most recent Platts assessments, which is flat to the 30-day moving average. The same crude would cost a NWE refiner around $103.37/b on a 30-day moving average.
That said, Mexican Maya crude -- which will be loaded onto the same VLCC bringing the WCS cargo to Spain -- was marketed to European buyers at $94.78/b Wednesday. This put the delivered cost around $96/b for both the Mediterranean and NWE on a 30-day moving average.
REPSOL STEPPING UP
Repsol's purchase of the WCS cargo gives the company access to the advantaged crudes that have long made US Gulf Coast refining margins far more profitable than those for European refiners.
While access to cheaper crudes has helped widen the gap in relative profitability, the addition of vast amounts of coking capacity on the USGC also has allowed refiners there to get more from less. This in turn has given USGC refiners a competitive advantage when it comes to the European and Latin American distillates markets.
Although Platts does not publish coking margins for Europe, Urals cracking margins in the Mediterranean have averaged around $1.17/b so far this week, down from around $1.79/b the week prior. Cracking margins in NWE have been only slightly better, averaging around $2.44/b so far this week, down from $3.20/b the week prior.
But on the US Gulf Coast, WCS coking margins have averaged just over $14/b so far this week, and that is down from around almost $15/b in the week prior. Maya coking margins were under $9/b this week, down from almost $11/b last week.
WCS yields a larger share of distillate and a lower share of jet fuel than Maya, which helps to account for the former's stronger margin.
Platts margins reflect the difference between a crude's netback and its spot price. Netbacks are based on crude yields, which are calculated by applying Platts product price assessments to yield formulas designed by Turner, Mason & Co.