Syncrude impacts to Cushing flows

[dan_s]

Comments below are from TPH Morning Notes 6-26-2018

Significant inventory and heavy availability should backstop flows into U.S.

Following up on the Syncrude discussion, with many calling for reduced flows from the Syncrude project in support of near-term Cushing/WTI strength. For two key reasons we see the outage as neutral to inbound Cushing flows: 1) Western Canada sits at record inventory levels, with sufficient barrels available to backstop a dropoff in flows for a one month period (~10mmbbls); and 2) Availability of heavy crudes running on crude-by-rail (or generally trying to find a home) that would be happy to shift onto pipe to backfill any available capacity on pipe. Given the shift in management of Enbridge's Mainline (backfilling available capacity on Lines 2/3 with a medium blend utilizing heavy barrels), as much as 175-200mbpd of heavy barrels could be available to shift from rail, with the remaining 150-175mbpd (from Syncrude 350mbpd capacity) able to be backfilled by inventories (~5mmbbls). For heavy barrels, we note that any utilized to backfill available pipe capacity would actually be pulling barrels from seaborne markets back into Cushing. The bottom line is we don't expect a material dropoff in Cushing inflows as a result of the outage. For Canadian producers, the potential for a significant draw in inventories would be a boon, as conversations around record levels has caused concerns on light and heavy differentials over the back half of 2018, with the winter months a time of seasonal builds in Alberta crude inventories.