For Newbies: Good Example Of What We Mean By The "Right" Kind Of Oil -- October 18, 2018

Over at oilprice.com. China can't get enough of Canada's heavy oil -- at a $50 discount from WTI. But it's not just the price. It's also the "right" kind of oil -- the kind of oil China needs:

China’s two other main sources of heavy crude—Australia and Venezuela—are both going through a production decline albeit for different reasons.

While the Venezuela situation is clear and unchanged, Australian heavy crude production has been on the decline due to natural depletion. In fact, Woodside, the operator of the field that produces one of its benchmark heavy grades, Enfield, plans to stop pumping oil at the field by the end of this year.

Currently, there is also the seasonal factor of construction: Chinese refiners use a lot of the heavy crude they import for the production of asphalt, to be used in road construction, under Beijing’s large-scale infrastructure plans. But even after this seasonal high, chances are Chinese refiners, state and teapots alike, will continue to take advantage of the low price of Canadian crude.

There are no signs that the pipeline situation in Canada will change anytime soon. There are also no signs that production growth will begin to slow. Canadian producers are pretty much in the same position as their U.S. counterparts with the exception of the difference in prices. They need to pump more because they have debts to repay and businesses to keep afloat.

that Chinese companies had bought three cargoes of Canadian heavy crude, to load in Vancouver in November. More will follow: the huge discount of Western Canadian Select to WTI is not the only reason for this shift. The other reason has to do with supply. China’s two other main sources of heavy crude—Australia and Venezuela—are both going through a production decline albeit for different reasons.

If it weren’t for the hefty discount to WTI, the shipping costs would have remained too high to be attractive for Chinese refiners.

Note that another source of "heavy oil" seems to be drying up.