TORONTO: The depressed Canadian oilpatch is getting a market share boost as U.S. tight oil production declines.
Canadian crude oil exports to the United States reached its highest level ever of 3.4 million barrels per day in the first week of January, according to preliminary data from the U.S. Energy Information Administration.
“That’s the one piece of puzzle you don’t hear too much about — the market share Canada is gaining in the U.S.,” said Carl Evans, senior crude oil analyst at energy research firm Genscape.
The surge comes as U.S. crude oil production recedes on the back of a withering oil price environment, with the EIA expecting a 80,000 bpd decline in U.S. domestic output in December alone.
“That’s definitely a positive for Canada,” said Martin King, vice-president institutional research at FirstEnergy Capital Inc. “As U.S. supplies come off, may be we can get our foot a bit more in the door, and capture a bit more of that market.”
The global oil and gas industry is reeling from a 45 per cent decline in crude oil output last year. West Texas Intermediate was enjoying a rare positive day on Tuesday, up 3.6 per cent to US$28.46 per barrel, but is down around 20 per cent since the start of the year.
As OPEC pursues its policy of gaining market share and driving down prices, most non-OPEC producers have curtailed spending to weather the prolonged downturn. Non-OPEC production in December declined sharply by nearly 650,000 bpd to 57.4 million bpd— its lowest level since September 2012, according to an International Energy Agency report published Tuesday.
Canadian conventional and oil production also fell last year, but heavy oil production from oilsands projects rose 250,000 bpd and will rise by another 260,000 bpd, energy investment broker Peters & Co. said in a report.
Large-scale projects such as Husky Energy Inc.’s Sunrise, ConocoPhillips Inc.’s Surmont and Cenovus Energy Inc.’s Christina Lake and Foster Creek projects are adding more Canadian barrels to market.
In contrast, U.S. oil production is set to decline to around 8.7 million bpd this year, compared to 9.4 million bpd in 2015, EIA forecasts. With U.S. demand for cheap gasoline expected to hold up this year, Canadian producers may be able to increase their market share.
“Fall of U.S. supplies will open up more opportunity for Canadian supplies in U.S. Gulf and globally for re-export,” King said in a presentation.
The U.S. remains Canada’s sole market of note, with plans to build pipelines linking the oilsands to global markets dashed by environmental and aboriginal opposition.
The Canadian export surge in the U.S. echoes OPEC mopping up global market share as non-OPEC production recedes. Canadian oil now accounts for 45 per cent of all U.S. import crude imports, from about 30 per cent three years ago.
While light U.S. shale production is not exactly a direct swap with heavier Canadian crude, refiners can make the economics work as the Western Canada Select is the world’s cheapest crude oil.
“The refineries can take heavy barrels and blend them with light barrels to get to a more medium barrel… Keeping in mind that the heavy barrels are the cheapest oil in the market,” Evans said.
Bloomberg’s Western Canada Select benchmark was trading at US$14.86 per barrel, its lowest level since the business newswire started tracking the benchmark in 2008.
The surge in Canadian exports provides some crumbs of good news at a time when prices are expected to remain depressed for sometime to come. The IEA expects the global oil market to remain oversupplied, especially as Iran is expected to bring another 600,000 bpd , leaving the market “drowning in oil.”