Heavy, sour U.S. Gulf Coast crudes firmed to the strongest levels in three months this week on tight supplies of heavy oils, traders said on Thursday.
Heavy Louisiana Sweet (HLS), a heavy coastal grade delivered into Empire, Louisiana, traded around an $8-per-barrel premium to U.S. West Texas Intermediate crude futures (WTI) on Wednesday, the strongest since mid-October and up $1 over last week.
Valero Energy Corp, Marathon Petroleum Corp and other Gulf Coast refiners have plants that are geared to running heavy sour crudes.
They normally buy heavy barrels from Saudi Arabia, Canada, Mexico and Venezuela, but limits on crude production or exports are fueling price increases for scarce grades.
Refiners have scooped up the HLS at higher prices than Light Louisiana Sweet (LLS), the U.S. coastal benchmark that last traded $7.15 over WTI, traders said. LLS rarely trades below HLS.
Mars Sour, a medium sour offshore grade delivered into Clovelly, Louisiana, hit the strongest premium to U.S. crude in three months on Thursday, seen offered at a $5.65 premium.
“Saudi imports are down, pushing up HLS and Mars relative to lighter crude because Gulf Coast refiners need heavier barrels,” said Sandy Fielden, an analyst at investment firm Morningstar.
Saudi crude exports to the U.S. Gulf Coast hit a five-year low in December at 68,000 barrels per day (bpd), data from market intelligence firm Kpler shows. The Organization of the Petroleum Exporting Countries plans this month to cut total output by 800,000 barrels per day.
Venezuela’s crude exports to the United States last year fell to 500,013 bpd, the lowest annual amount in about three decades, according to Refinitiv Eikon data.
Heavier barrels from Canada also face constraints to the Gulf Coast because of pipeline bottlenecks and output cuts in Alberta, traders said.
The discount for Canadian heavy crude compared to U.S. benchmark crude has slumped to less than $7 per barrel, down from a $40 discount in October, and below the cost of railing it to the Gulf Coast.
“Not many places to turn” for Gulf Coast refiners looking for heavy crude, one trader said.
Mexican oil production fell last year. Mexico’s state-run oil company Pemex produced 1.72 million bpd in November, down from 1.93 million bpd last January, according to company data.
U.S. imports of Mexican crude in December were 597,243 bpd, down from 741,742 bpd in the same month a year-earlier, according to data from Refinitiv Eikon.