Declining Saudi Crude Oil Imports Into The US Now Affecting Regional Spreads -- June 29, 2017

This is my simplistic view of the subject; I could be wrong; it wouldn't be the first time. 

US refineries along the Texas-Louisiana gulf coast are optimized for heavy oil.

Without heavy oil, US refineries are not going to need as much Bakken oil.

That's why the Keystone XL was so important for the Bakken -- not because it would have carried Bakken oil (although that was possible) but because US refineries needed a stable source of heavy oil. US refineries blend light oil (US glut) and foreign heavy oil (cartel) to make things work.

This was a difficult concept for President Barack Obama to understand.

So, there is a relative glut of light, sweet oil (Bakken oil, WTI) and a relative decline in heavy oil (Canadian oil sands -- operators fleeing; Venezuela -- imploding; and, Saudi Arabia -- in deep doo doo). One should be able to predict the way prices will move based on that data.

So, let's see.

From Platts, today:

Declining Saudi crude imports to USGC strengthen regional differentials.A drop in the volume of Saudi Arabian sour crude imports to the US Gulf Coast has served to boost medium and heavy sour crude differentials.

Amid an increasingly tight global sour crude market driven by OPEC cuts, Saudi Arabian crude imports to the Gulf Coast in June decreased month on month by 9.975 million barrels to a level of only 11.519 million barrels, according to US customs data.

In May, Saudi crude imports totaled 21.494 million barrels and in April these imports reached 19.801 million barrels.

As imports from Saudi Arabia have tightened, the differential for domestic medium sour grade Mars has increased 85 cents/b since reaching a three-month low of WTI cash minus $1.80/b on June 20. Mars was assessed at minus 95 cents/b on Thursday after five trades were heard during the day at that level. (Mars off-shore platform.)

And this one-off:

The tightened supply in the Gulf Coast proved the perfect market for five cargoes of Mexican heavy sour Maya crude, diverted to the region from the US West Coast. Mexican state oil company Pemex diverted the cargoes to the USGC due to pipeline damage following both a regional flood and later a fire at the Salina Cruz refinery, according to market sources.

By the way, speaking of the Keystone XL killed by President Barack Obama, note this CBR story posted earlier today. Apparently, some folks in Washington thought CBR was better for the environment than pipelines. LOL.