A key U.S. sour crude grade is being discounted at levels not seen in more than two years as it competes with a flood of reserves released by the White House to counter sanctions on Russian oil, market participants said.
The Biden administration has been selling barrels from the U.S. Strategic Petroleum Reserve to make up for lost global supplies to try to quell surging oil prices. However, much of those barrels are considered sour, or having a higher sulfuric content, putting them in direct competition with Mars sour, the key offshore U.S. oil grade.
The global oil market has scrambled for supplies since Russia's invasion of Ukraine in late February prompted companies and countries to avoid purchases of Russian energy.
In mid-April, Washington sold 30 million barrels of crude, of which 26.3 million were sour, according to energy consultancy FGE. Those barrels, many purchased by U.S. refiners, were expected to hit the market between May 15 and June 30, FGE said.
The SPR crude deliveries have increased the discount on Mars Sour WTC-MRS to a $6.50-per-barrel discount to U.S. West Texas Intermediate benchmark on Friday, traders said, the lowest since March 2020.
The flood of sour barrels is hurting prices for other North American markets, such as Western Canada Select (WCS), which is trading in Alberta at more than $20 a barrel below WTI, the widest since early 2020.
"This should result in higher exports of both Mars crude and Canadian heavy barrels out of the U.S. Gulf Coast," said Matt Smith, lead oil analyst for the Americas at Kpler.
There has not been a Mars export since a very large crude carrier left for India in early May, Smith said.
Recommended Reading
US Oil, Gas Rig Count Falls to Lowest Since January 2022
2024-05-03 - The oil and gas rig count, an early indicator of future output, fell by eight to 605 in the week to May 3, in the biggest weekly decline since September 2023.
Pemex Reports Lower 2Q Production and Net Income
2024-05-03 - Mexico’s Pemex reported both lower oil and gas production and a 91% drop in net income in first-quarter 2024, but the company also reduced its total debt to $101.5 billion, executives said during an earnings webcast with analysts.
Chouest Acquires ROV Company ROVOP to Expand Subsea Capabilities
2024-05-02 - With the acquisition of ROVOP, Chouest will have a fleet of more than 100 ROVs.
SLB, OneSubsea, Subsea 7 Sign Collaboration Deal with Equinor
2024-05-02 - Work is expected to begin immediately on Equinor’s Wisting and Bay Du Nord projects.
SilverBow Makes Horseshoe Lateral in Austin Chalk
2024-05-01 - SilverBow Resources’ 8,900-foot lateral was drilled in Live Oak County at the intersection of South Texas’ oil and condensate phases. It's a first in the Chalk.