Canada versus the world: A look what US refineries actually pay for foreign oil imports
Canadian oil imports into the US hit a record high of 3.5 million bbl/day earlier this year. Although everyone knows Western Canadian Select (WCS) trades at a discount to domestic West Texas Intermediate (WTI), ever wonder what US refineries actually pay for different streams of imported crude?
Import prices by country
As a whole, crude from Saudi Arabia has the highest landed cost. Surprisingly, crudes from Mexico and Canada have actually been on par since late last year. Even more surprisingly, Venezuelan crude is actually the cheapest import since November of 2011.
Note that the above prices are landed costs, which includes the cost of transportation to the refinery. Commonly quoted oil prices, such as WTI, Brent or WCS are FOB (Free on Board), priced at their point of export. FOB prices exclude shipping, loading, transportation, insurance and any duties.
Although Canadian crudes have lower FOB prices, they have much higher transportation costs since most Canadian crudes are priced out of land-locked Hardisty, Alberta. Most international crude streams are prices out of a shipping port. Transport by oil tanker is by far the cheapest, making for a narrower gap between landed costs and FOB prices.
Import prices by crude stream
When broken down by crude stream, the picture is slightly different. Canadian heavy sour has historically been the cheapest crude stream, but actually moved to par with Mexican heavy sour crude earlier this year.
Reason? Probably a drop in transportation costs as some pipelines reported excess capacity earlier this year due to the recent reversal of Enbridge's Line 9, bringing more Alberta oil to Ontario/Quebec, freeing up pipeline capacity to the US. And a steep decline in crude-by-rail volumes has dropped the price of rail transport considerably this year.
Since the US produces a large volume of light oil from shale, its imports tend to be quite heavy. That allows their refineries to blend to an optimal API gravity, optimizing throughput yields.
In 2015, US oil imports were about 55% heavy (API < 22.3°), 35% light (API > 31.1°) and about 10% medium.
Canadian exports to the US are presently about 45% light and 55% heavy, making it spot-on in terms of meeting the needs of US refineries.
All data supplied by the US Energy Information Administration (EIA) as per the latest Petroleum Marketing Monthly Report published on July 1, 2016.