Valero Energy Corp. (VLO:US) has received approval from the Commerce Department to ship crude from the U.S. Gulf Coast to its Quebec City refinery.
The 235,000-barrel-a-day refinery processes primarily light, low-sulfur crude from Europe and Africa, Bill Klesse, Valero’s chief executive officer, said during the company’s third-quarter earnings call on Oct. 30. Shipping costs from the Gulf Coast to Quebec averaged about $2 a barrel or less, he said. The company hasn’t transported any significant shipments yet, Bill Day, a San Antonio, Texas-based spokesman for the company, said today in an e-mail.
U.S. crude production increased to 6.863 million barrels a day last week, the most since January 1994, Energy Department data show. The production gains have been primarily light, low sulfur crude from Bakken and Eagle Ford shale formations in North Dakota and southern Texas. U.S. crude moving to Canada would displace light, sweet oil from West African nations like Nigeria and Angola, said Amrita Sen, chief oil market analyst for Energy Aspects Ltd in London.
“We’re going to see more volumes shipped to Canada” from the Gulf Coast, Sen said in a phone interview. The West African oils could then start competing in Europe with Brent and in Asia with Dubai, she said.
As more oil from the interior of the U.S. reaches the Gulf Coast, prices will shift from a historic premium to a discount against global waterborne crudes, Klesse said Oct. 30.
Light Louisiana Sweet, a light, low-sulfur crude produced in the Gulf of Mexico, was at a 41-cent-a-barrel discount to Brent, the global benchmark for cargo imports, at 11:29 a.m. in New York, according to data compiled by Bloomberg. That compares with a $2.84 premium during the previous five years.
Yesterday, Plains Marketing LP’s posted price for Eagle Ford crude in South Texas was $101 a barrel, $11.26 below LLS and $13.33 below Brent.
Dubai, the benchmark crude in Asia, was $5.15 a barrel below Brent today, from $3.68 a year ago, according to data compiled by Bloomberg.
“If we are in a situation where demand is constrained like it was this year, there could be a real impact on Brent and Dubai as West African crude begins swinging into those areas where it might not have competed otherwise,” Sen said.
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