Canada oil shortages and bad weather will tighten stocks at US storage hub

A power outage and wet weather at a major oil sands manufacturer have contributed to a tightening of crude export supplies?out?of Western Canada. This could affect the supply to U.S. Midwest refining facilities and the Cushing storage facility in Oklahoma. The supply disruptions in Western Canada will add to a tightening global market, as a fifth of global oil and gas shipments have been halted behind the Strait of Hormuz because of the U.S./Israeli war in Iran. U.S.?inventory, including strategic reserves, has fallen by 79 millions barrels since the Iran War began late February. Inventories at Cushing are nearing their operational lows. Canada is the fourth largest oil producer in the world and the biggest foreign supplier of crude oil to the U.S. The oil flows into storage tanks at Cushing, as well as Midwest and Gulf Coast refining facilities. Midwest refiners in the U.S., who have no access to waterborne oil, are heavily reliant on Canadian oil. Many of these refineries were designed to process oil sands crude. Recent heavy rains have temporarily slowed down oil sands extraction in northern Alberta. A power outage at Cenovus' Foster Creek and Christina Lake operations last week prompted Cenovus to declare force majeure.

According to a research note published by Energy Aspects last week, the power outage took 10% of the oil sands company's production offline.

Cenovus didn't immediately respond to a comment request.

Since the start of the war in Iran, Canadian crude is also in high demand, particularly from Asian buyers who see Canada as a reliable, safe source of supply. The Trans Mountain pipeline in Canada, which transports Canadian heavy crude oil to the Pacific coast, for export overseas including Asia, is now operating at full capacity, for the first since a major expansion two years ago.

Wood Mackenzie's Lee Williams, an analyst at Wood Mackenzie, said that the Western Canadian crude inventory is now at its lowest level since 2020.

Williams said in an email that Western Canadian crude oil inventories have decreased by over 4 million barrels during the past two weeks, and by almost 8?million since February's end.

Canadian heavy crude oil prices have increased significantly over the past week and a half. The discount between West Texas Intermediate, the North American benchmark, and Western Canada Select has decreased by about $4 since May's end. Reporting by Amanda Stephenson from Calgary and Arathy Smasekhar from Houston

(source: Reuters)