Cheap Canadian crude heads to Asia as arbitrage opens - trade

Wed Dec 4, 2013 3:43am EST

Related Topics

* 2 Aframaxes carrying Canadian crude to arrive in Asia in Dec

* Wide Brent-WTI spread, big spot discounts draw demand for Canadian grades

* Pipeline, terminal constraints cap arbitrage volume

By Florence Tan and Jacob Gronholt-Pedersen

SINGAPORE, Dec 4 (Reuters) - A wide spread between U.S. crude futures and Brent has opened the arbitrage window for Canadian crude to head east although the volume has been limited by infrastructure constraints and a small pool of potential buyers, traders said on Wednesday.

Canadian crude has been flowing to Asia intermittently over the past few years as North America's booming oil output has depressed U.S. benchmark prices.

The arbitrage flow of synthetic oil from western Canada, however, has been curbed by limited pipeline capacity, a shallow draft at the terminal that does not allow the loading of more economical large-size tankers, and a small number of refiners in Asia that can process these heavy sour grades.

Traders said the recent arbitrage opportunity was partly possible because of Brent's wide premium to U.S. West Texas Intermediate, or WTI CL-LCO1=R.

The Brent-WTI spread hit its widest in nine months last week. Canadian grades are priced against the U.S. oil, while most Asian grades are priced against Brent.

Two Aframaxes loaded crude at Kinder Morgan's Westridge Marine Terminal near Vancouver last month and are headed to Asia, Reuters iMap showed.

Tanker Mitera Marigo will arrive at on Dec. 14 Shui Dong in southern Maoming City, where Sinopec's refineries are located. The Eagle Phoenix will reach Singapore on Dec. 21.

The charterers were not immediately known.

ExxonMobil's Cold Lake Blend and Royal Dutch Shell's Albian Heavy are some of the Canadian crudes that load at the Westridge Marine Terminal, traders said.

Both grades have an API gravity of 19-21 degrees and contains 2-3.5 percent sulphur.

"There is a regular flow to China and India," a Singapore-based trader said, adding that the discount for Cold Lake would be wider than $20 a barrel to dated Brent delivered to Asia.

In comparison, heavy South American grades such as Colombian Castilla and Brazilian Roncador Heavy that are frequently shipped to Asian refiners were trading at discounts of around $15 to $16 per barrel below dated Brent, other traders said.

Despite the low prices, buyers of these heavy Canadian grades in Asia were restricted mainly to China, India and oil majors as the oils have a high metals content and buyers need to have a big pool of inventory to blend down the heavy crude, a trader with a North Asian refiner said.

Lighter sweet crudes from eastern Canada have also begun moving to Asia, competing with West African and Asia-Pacific grades. The volume could grow as the United States rejects imports due to its growing shale oil boom.

India's biggest refiner Indian Oil Corp last month bought one million barrels of Canadian White Rose crude through a tender from trader Glencore. (Reporting By Jacob Gronholt-Pedersen and Florence Tan; Editing by Tom Hogue)

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