China Replaces Venezuelan Oil With Canadian Imports

Chinese refiners are buying more and more very cheap heavy Canadian crude oil to make up for the dwindling supply of Venezuela’s heavy grades as China’s road construction sector—a key consumer of the heavy oil’s bitumen yield—is booming.

China purchased 1.58 million barrels of heavy Canadian crude oil for loading in September, up by nearly 50 percent compared to the 1.05 million barrels it imported from Canada in April, Bloomberg quoted data by cargo-tracking and intelligence company Kpler on Thursday.

Analysts expect the Chinese purchases of heavy Canadian oil to continue to be high in October amid the typically peak construction season.

The high Chinese demand for bitumen-yielding heavy crude coincides with reduced supply of Venezuela’s Merey crude grade due to the crumbling production in the Latin American country. But more importantly, China is sourcing heavy crude from Canada at a bargain price—although international benchmark oil prices have rallied in recent weeks, Canada’s oil is heavily discounted due to severe bottlenecks because of a lack of pipeline capacity.

As of Wednesday, the price of Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—traded at the huge discount of US$50 a barrel to WTI.

China’s appetite for bitumen-yielding heavy crude is expected to stay strong throughout the rest of the year, because infrastructure spending in the second half of 2018 is seen rising at five times the pace from the first half, according to Bloomberg.

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Cheap Canadian oil could help the Chinese refiners processing it to book better refining margins. According to Kpler data quoted by Bloomberg, the Canadian heavy crude cargoes are being delivered at ports in China serving the smaller independent Chinese refiners—the so-called teapots.

Meanwhile, oil prices in Canada are plummeting.

The WCS discount to WTI grew to US$48 a barrel on Wednesday morning, the highest differential since at least 2011, according to Tim Pickering, founder of Calgary-based price tracker Auspice Capital, quoted by The Canadian Press. The Edmonton Sweet discount to WTI jumped to a multi-year high of US$27.50 a barrel, three times the typical size of the discount.

By Tsvetana Paraskova for Oilprice.com

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