Canadian light crude benchmark Syncrude Sweet Premium on Wednesday fell to its lowest point since August 2015, pressured primarily by cheap Mixed Sweet and a lower demand for distillates.
S&P Global Platts on Wednesday assessed Syncrude Sweet Premium, or SSP, at the calendar-month average of the front-month NYMEX light sweet crude futures contract (WTI CMA) minus $2/b, an outright price of $44.13/b. The last time the grade was weaker was on August 31, 2015, when Platts assessed it at minus $2.40/b. Comparatively, the SSP differential for the third quarter of 2016 averaged WTI CMA minus 1 cent/b and spent most of the year at a premium to WTI.
Canadian crude traders said the fall in SSP can be primarily attributed to decreased demand, driven in part by the competing Canadian light oil Mixed Sweet, a conventional crude. SSP has a gravity of 31.7 API and 0.19% sulfur content, while Mixed Sweet, or MSW, has a gravity of 41.4 API and 0.42% sulfur content. Platts on Wednesday assessed MSW at WTI CMA minus $4/b.
Additionally, SSP has a larger distillate cut than MSW.
Traders said Alberta and US Midwest refiners have less appetite for distillate, hence a decrease in demand for SSP and more favoritism for a competing grade with better cuts and a cheaper price -- MSW.
"I think the old laws of supply and demand are nailing [SSP] at the moment!" a Canadian market source said.
Another pressure point for SSP differentials is increased production. Notably, the expected completion of maintenance at Shell's Scotford upgrader and the startup of additional production at Canadian Natural Resources' Horizon oil sands facility.
Shell in September announced flaring on its Edmonton community update line, with crude traders indicating the Scotford 255,000 b/d heavy oil upgrader was offline and would return in November. A Shell representative didn't immediately return a request for comment Wednesday. CNR CEO Steve Laut said in August that Phase 2B of its Horizon project will be starting up in October and will reach full rates in November, adding 45,000 b/d of new production.
The distillate disadvantage is also displayed in the cracks. Using rack pricing in Edmonton, Alberta, from Telvent/DTN, the diesel crack against SSP was around $17.50/b Wednesday, down $3.93/b from the same day last week. The crack against gasoline was $21.66/b Wednesday. Comparatively, the diesel crack against Mixed Sweet was around $15.50/b Wednesday, down $3.23/b week on week. The gasoline crack was around $19.66/b.
Midwest distillate sources said demand has been tepid despite harvest season, which has been hampered by heavy rains in the region. Additionally, a closed arbitrage to the Northeast -- further complicated by Colonial Pipeline closures -- has Gulf Coast traders shipping more barrels to the Midwest.
"To the extent that the Explorer Pipeline has space, the Gulf Coast refiners are going to have to price it to make it work," a distillate source said, later adding that "Midwest refiners are going to try to protect their markets to avoid more Gulf Coast barrels coming up, because that's only going to put a damper on it."
The Explorer Pipeline has been allocated for the past two months to ship refined product barrels out of the Gulf Coast.
Midwest ULSD stocks fell to 31.26 million barrels in the week ended October 28, Energy Information Administration data showed Wednesday, but still stand 5.05 million barrels above the five-year average for the same time of the year, and traditionally Midwestern inventories rise in the winter as demand trails off.
