Canadian oil shortages, bad weather to tighten inventories at key US storage facility
Wet weather and power outages at a major oil sands producer contributed to tighter supplies for exports out of Western Canada, which could tighten supplies for the Cushing storage facility in Oklahoma and US Midwest refineries.
Supply disruptions in Western Canada add to an already tight global market as a fifth of the world’s oil and gas exports have been diverted behind the Strait of Hormuz due to the US/Israel war in Iran.
U.S. crude supplies, including those from strategic reserves, have fallen by 79 million barrels since the start of the Iran war in late February, with Cushing’s inventory nearing the operational limit.
Canada is the world’s fourth-largest oil producer, and the largest exporter of crude oil to the US, with oil flowing to storage tanks in Cushing and to Midwest and Gulf Coast refineries.
Refiners in the US Midwest, which lack access to wastewater, are heavily dependent on Canadian oil and many of the region’s refineries are designed to handle oil sands pollution.
Refineries in the US Midwest, which do not have access to groundwater, are heavily dependent on Canadian oil and many of the region’s refineries are designed to handle oil sands pollution.
AP Photo/Charlie Riedel, File
But recent heavy rains in northern Alberta have slowed the pace of oil sands drilling, and a power outage last week at Cenovus Energy’s Foster Creek and Christina Lake operations prompted the company to declare force majeure, three sources told Reuters.
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A temporary power outage took about 10 percent of the company’s oil sands production offline, according to an Energy Aspects research note last week.
Cenovus did not immediately respond to a request for comment.
Canadian crude has also been in high demand since the outbreak of war in Iran, particularly among Asian buyers who see the country as a safe, secure source of supply.
Canada’s Trans Mountain pipeline, which transports Canadian heavy oil to the Pacific coast for export, including to Asia, is operating at full capacity for the first time since a major expansion was completed two years ago.
Western Canadian crude inventories are at their lowest level since 2020, said Wood Mackenzie analyst Lee Williams.
“As of last week, Western Canadian inventories have decreased by more than 4 million barrels over the past two weeks and nearly 8 million barrels since the end of February,” Williams said in an email.
Canadian crude prices have been very strong over the past week and a half, and the discount on Western Canada Select to North America’s benchmark West Texas Intermediate has narrowed by about $4 since the end of May.
