Note: The big dip in Canadian imports in April 2016 was caused by a pipeline that broke in South Dakota in early April.
psw08 2016-4-27
It looks like Mister Market moved up just in time to save Canadian tar sands producers. Imports from Canada were back up to 3.3 million barrels per day (MM bbl/day) this past week and look to be heading back towards 3.4-3.5 MM bbl/day. Last summer Canadian production was hurt with tar sands maintenance and with a large forest fire around some of the oil sands operations shutting them down and causing some damage. It looks like Canadian imports could be up to 1MM bbl/day higher this summer than last.
Many in the oil market are very focused on US production which is certainly falling by around 100k bbl/day/month, but in the near term Canadian production looks to wipe out those losses. It appears tar sands producers are happy to just cover operating costs, so will likely be locking prices in now that WTI is in the mid $40s with hedges. Suncor Q3 2015 financials show a $410MM operating profit while WTI averaged about $46/bbl over the quarter. Others have indicated oil sands operational break even is achieved around WTI mid $40s. Indeed in recent weeks as crude has broken above $40, short positions with swap dealers which provide hedges to producers have risen, just as they did into year end 2015. Notice how Canadian imports actually increased into the new year even as crude spot prices plummeted.
Source: CME Group data provided by CFTC.gov
This along with Iran increasing production will spur the Saudis to increase output as well as their exports to the US have lagged in recent weeks and are well below peak levels last seen in 2013. This week was a big down week for Saudi imports to the US so a makeup week next week is to be expected along with a bigger surge to follow with prices in the $40s. I doubt the Saudis want to concede market share to Canada anymore than they want to concede share to US shale producers or Iran.
psw08 2016-3-16
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