High Noon on the Gulf Coast: Canada, Saudi oil set for showdown

NEW YORK – As a test of wills between OPEC nations and U.S. shale drillers fuels a global oil market slump, a brewing battle between Canadian and Saudi Arabia heavy crudes for America’s Gulf Coast refinery market threatens to drive prices even lower.

While the stand-off between the oil cartel and U.S. producers of light, sweet shale oil has captured the limelight in recent months, the clash over heavier grades – playing out in the shadowy, opaque physical market – may put even more pressure on global prices that have halved since mid-2014.

Two factors will come into play over the next few weeks: From the North, new oil pipelines will pump record volumes of Canadian crude to the southern refineries, many better equipped to process heavy crudes than lighter shale oil.

(snip)
“So far, the Gulf Coast has suffered from an oversupply of light oil, but now there’s competition for heavier crude,” said Sandy Fielden at RBN Energy. With the Saudis already facing fierce competition for their light grades, the arrival of Canadian crude “could add insult to injury”, he said.

On Monday, Saudi Aramco stepped up its counteroffensive, cutting its monthly U.S.-bound price for Arab Medium for a sixth straight month, putting it at the deepest discount against the regional sour crude benchmark since December 2013. [OSP/SA].

The timing of this clash may magnify its market impact as Houston-area oil refiners shut down for maintenance in early spring, further reducing their demand by an estimated 1 million barrels a day (bpd).

“We’ll see that overhang into the summer, at least,” said one physical crude trader.

That will put further pressure on U.S. prices and may spur investors in New York and London to extend a sell off in crude futures.

SPOILT FOR CHOICE

(snip) Large volumes of foreign heavy oil reaching the Gulf Coast will give many U.S. refiners more choice after they have upgraded their systems to process cheaper, heavier crudes. The new supply also marks a breakthrough in Canada’s years-long effort to bring its growing Alberta oil sands crude output to new markets.

Enbridge Inc’s 600,000 bpd Flanagan South pipeline, which runs from Illinois down to the Cushing, Oklahoma, oil hub began commercial service on Dec. 1; Enterprise Product Partner announced that its 450,000 bpd Seaway Twin pipeline from Oklahoma to Freeport, Texas, shipped its first volumes on Dec. 21.

That promises another quantum leap for Canadian crude after its U.S. Gulf Coast sales already hit a record 274,000 bpd in October, nearly three times as much as a year earlier, according to U.S. data.)

(snip) However, some refiners are likely to blend oil sands crude with overabundant super-light U.S. condensate, creating medium blends that may rival Saudi Arabia’s main grade,

The build-up comes as Saudi Arabia shifts its focus to fiercely defend what remains of its market in the United States – the world’s largest consumer of oil.
http://bakken.com/news/id/229134/high-noon-gulf-coast-canada-saudi-oil-set-showdown/
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I have been told that the Tar sands Sludge is too thick to move through a pipeline so it will be thinned with the light crude from the ND Bakken.
In reading this article, and correct me if I am wrong, I understand that OPEC is not only threatened by US light crude, with the heavy oil coming from Canada to the southern refineries, the threat to Saudi Oil is a serious one & the only way to put the skids on the US as to moving our glut, is to lower oil prices.
Am I reading this correctly?
I am wondering what it will eventually take for the market to stabilize at a reasonable ppbarrel.

This article just made me aware of a more extensive & deeper battle in the oil market between OPEC & the US.

Appears southern refineries are already processing Tar Sands mixture & of course the KXL would increase that.
Another reason why OPEC dropped oil prices.