US Gulf Coast Heavy Crude Oil Prices Rise Amid Supply Constraints
April 10, 2024
Recent weeks have witnessed a surge in prices for heavier crude oil varieties along the U.S. Gulf Coast, with trading approaching parity with lighter oil—a trend signaling supply constraints that could contribute to the upward trajectory of gasoline prices.
Refineries dotting the Gulf Coast, responsible for over 55% of total U.S. refining capacity, specialize in processing medium and heavy crudes, yielding greater quantities of diesel and jet fuel compared to lighter oil variants. While heavier crudes traditionally come at a lower price due to their higher impurity levels and more expensive processing requirements, recent market dynamics have led to a shift.
Driving the upward trend in heavy crude prices are dwindling oil exports from Mexico, the looming possibility of renewed sanctions on Venezuelan crude, the imminent commencement of operations for a Canadian pipeline, and ongoing output reductions by the Organization of the Petroleum Exporting Countries and its allies (OPEC+).
According to pricing data provider General Index, Heavy Louisiana Sweet crude traded at a $2.60 per barrel premium to West Texas Intermediate (WTI) crude futures on Monday, a notable change compared to the $2.80 premium for Light Louisiana Sweet. This difference of 20 cents marks a departure from the nearly 60-cent average observed throughout 2023.
The surge in heavy oil prices is poised to exert upward pressure on gasoline prices ahead of the U.S. summer driving season. Retail gasoline prices have already climbed to an average of $3.60 per gallon this week, reflecting a 20-cent increase from the previous month—an inflationary trend.
Meanwhile, Canadian crude prices in Houston have seen an uptick, trading at an average discount of $4.35 to WTI this quarter, compared to a more significant average discount exceeding $6 over the past year. The forthcoming commercial operations of Canada’s Trans Mountain oil pipeline expansion on May 1 are expected to bolster oil shipments to the Pacific Coast.
In addition to supply constraints, the possibility of Washington reinstating oil sanctions on Venezuela’s oil exports further compounds the tightness in supply for Gulf Coast refineries. The U.S. recently imported between 140,000 and 170,000 barrels per day (bpd) of Venezuelan crude.
Despite OPEC+ extending voluntary production curbs until the end of June, some member countries have surpassed their allocated quotas. This, coupled with the U.S. government’s now-canceled plan to repurchase crude for its emergency reserve, has contributed to the recent price surge for medium and heavy sour crude oils.
Source: Reuters
