Canadian oil producers may soon enjoy higher prices

Canadian oil producers may soon enjoy higher prices

Postby CreativeEquity » Sat Nov 13, 2021 7:39 pm

Canadian Oil Producers Eye New Pipeline Route To Gulf Coast As Marathon Reverses Capline Conduit

Canadian oil producers may soon enjoy higher prices for the crude they sell into the U.S. as a major south-to-north pipeline is in the final stages of a reversal — an under-appreciated event that could lift the prospects of the domestic oil industry.

Ohio-based Marathon Pipelines LLC filed tariffs for transportation of crude oil on its Capline pipeline from Patoka, Ill. to St. James, Louisiana for rates effective Oct. 25, according to RBN Energy, an energy markets consultancy.

Capline was the largest south-to-north flowing pipeline in the United States with a capacity of 1.2 million barrels of oil per day, but owner Marathon Petroleum has been working to reverse the flow since 2017, which would allow both heavy and light oil to flow from a storage hub in the U.S. Midwest to a major refining centre on the Gulf Coast. The company website notes that the reversal will be completed this year.

“They’re doing line fill right now,” BMO Capital Markets analyst Randy Ollenberger said of the Capline, adding that he expected the pipeline to shrink Western Canada Select discounts relative to West Texas Intermediate oil prices to US$10 per barrel. A barrel of WCS traded up 1.67 per cent Thursday to US$67.08, which implies a US$15.50 per barrel discount relative to the WTI price of US$82.58 per barrel.

“We don’t know who has contracts on the Capline, but we do think that everybody benefits in the sense that the spread comes in. You don’t have to be physically shipping on the Capline to benefit,” Ollenberger said, adding that he expects to see the impact of the line on the bottomlines of Canadian producers in the second quarter of 2022.

Oil producers contacted by the Financial Post said they expected the project would improve the returns of their barrels.

“I’m excited about it. I think the Capline reversal would certainly be a positive for Canadian producers and improve pipeline optionality, specifically for the heavier producers, but it’ll de-weight the entire pipeline system in Canada,” Grant Fagerheim, president and CEO of Whitecap Resources Inc., told the Financial Post, referring to problems where Canadian oil exports have exceeded pipeline capacity in the past.
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