Chinese refiners have been buying a lot of Canadian crude oil in the last couple of months, taking advantage of the massive discount of Western Canadian Select to West Texas Intermediate. China purchased 1.58 million barrels of heavy Canadian crude oil for loading in September, up by nearly 50 percent compared to the 1.05 million barrels it imported from Canada in April. Last month, Chinese refiners continued buying Canadian crude, with tanker loadings bound for China reaching 3.76 million barrels since the start of September.
The past two months were refinery maintenance season in the United States, and a lot of refineries have yet to ramp up to full production, meaning they have yet to ramp up their purchases of heavy Canadian crude that they need to make fuels, which means Chinese buyers have yet to face the competition of the U.S. refiners. China’s two other main sources of heavy crude, Australia and Venezuela, are both going through a production decline, reducing Chinese refiners’ choice in sourcing heavy crude. An additional reason for the surge in Chinese buying of Canadian crude this fall was the peak of construction season, hence an increased asphalt demand, hence greater heavy crude demand. As construction season reaches its end, this particular demand will decline with it.
The purchases have given troubled Canadian drillers hope for the future that even without the Trans Mountain expansion their crude could expand on Asian markets. This potentially huge market is what motivated the expansion of the Trans Mountain pipeline between neighboring provinces British Columbia and Alberta. However, there is little chance expansion will begin anytime soon, what with all the opposition and legal challenges from environmentalists and First Nations allies. A provincial election in the spring for Alberta and a federal election in the fall may significantly change the current balance of political power. If Chinese refiners continue to buy Canadian crude even without the cheaper pipeline channel, it would significantly brighten the prospects of Canada’s oil industry.