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N. America oil price surge may curb arbitrage flow to Asia - traders

Pubdate:2017-04-12 08:44 Source: Click: times

SINGAPORE, April 10 (Reuters) - The recent flow of U.S. medium-heavy sour crude to Asia may slow in the coming months after prices of North American heavy grades jumped on Friday following cuts to Canadian synthetic oil supplies, traders said on Monday.

Fire at Syncrude Canada's oil sands plant in Alberta in March will cut its production to zero in April, forcing other producers to also reduce output. Producers such as CNOOC Ltd (0883.HK) subsidiary Nexen Energy and ConocoPhillips (COP.N) rely on Syncrude's output to blend with their bitumen production.

"I think April loaders were already not economical before the syncrude issue as price differentials were rising sharply," a Singapore-based trader said, referring to the shipping of U.S. crude to Asia.

Canadian benchmark Western Canada Select blend for May delivery last traded close to a 22-month high, while U.S. Mars Sour (WTC-MRS) strengthened to its narrowest discount against U.S. crude since September 2015, trade sources in North America said on Friday.

The price spread between U.S. cash crude (WTC-) and Middle East's Dubai (DUB-1M-A) was as wide as $4 a barrel before the Canadian outage and swiftly narrowed to near parity at end-March, data on Thomson Reuters Eikon showed. The spread has since widened again to $1.75 on Friday.

The drop in Canada's output could affect exports to the United States and improve U.S. demand for its own production especially as American refiners gradually return from maintenance, Singapore-based traders said.

"For sure, it is more difficult than last month" to move U.S. medium-heavy crude to Asia, a second trader said.

If the flow of U.S. medium-heavy crude supplies to Asia slows, it may lend some support to similar grades from the Middle East as OPEC producers have reduced medium-heavy crude exports to comply with an agreement to cut output in the first half of this year, they said.

However, Russian Urals remains another source of heavy sour crude for Asian buyers as the price difference between Europe's benchmark Brent and Middle East's Dubai (DUB-EFS-1M) is narrow, the traders said.

Asian refiners which have bought medium-heavy U.S. crude this year included Japan's TonenGeneral, South Korea's Hyundai Oilbank Corp and Chinese independent refiners Dongming Petrochemical Group and Shandong Wonfull Petrochemical.

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