Petroleum & Other Liquids

This Week in Petroleum

Release date: January 18, 2018  |  Next release date: January 24, 2018

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Pipeline constraints likely affecting Canadian crude oil prices, Cushing inventories

Pipeline constraints have probably resulted in Western Canada Select (WCS) crude oil prices trading at their lowest levels compared with West Texas Intermediate (WTI) prices in nearly three and a half years. The constraints have likely contributed to the increase in crude oil shipments by rail, a more expensive form of transportation that is ultimately reflected in the WCS–WTI price spread. Reduced pipeline flows from Canada could also be a factor in the recent reduction in crude oil stocks in Cushing, Oklahoma, which declined by 22 million barrels (34%) since the beginning of November and were 17% below their five-year average as of January 12, 2018.

The crude oil spot price difference between WCS and WTI reached -$26.78 per barrel (b) on December 20, 2017, the largest difference since July 25, 2014, and settled at -$23.80/b on January 17, 2018 (Figure 1). Trade press reports and weekly rail traffic indicators from the Association of American Railroads suggest that U.S. imports of crude oil from Canada by rail increased in recent weeks.

Figure 1.

On November 16, 2017, TransCanada shut down the 590,000 barrels per day (b/d) Keystone Pipeline for 11 days because of a leak in South Dakota. The Keystone Pipeline transports Canadian crude oil from Hardisty, Alberta, to Cushing. Because of pressure restrictions, when the pipeline restarted on November 28, it was only allowed to operate at approximately 80% of full capacity before being slowly restored to full service.

In mid-December 2017, Enbridge Inc. announced apportionment on its Mainline crude oil pipeline system effective in January. Apportionment rations the available space on the pipeline and represents the percent of crude oil that is unable to be shipped compared with what was initially nominated. According to trade press reports, the apportionment for lines 4 and 67, which carry heavy crude oil such as WCS, increased from 21% in December to 36% in January. Even though apportionment does not mean any reduction in the amount of physical crude oil delivered on the pipeline, the increase suggests greater demand for shipping crude oil and is an indicator that demand for shipping via pipeline exceeds pipeline capacity.

Because wider price spreads reflect increased crude oil volumes transported by rail, total U.S. crude oil import volumes from Canada have not been significantly affected in recent weeks. However, the reduction in pipeline volumes may have reduced the amount of crude oil headed to Cushing, where the Keystone Pipeline directly flows, and may have contributed to the recent reduction in inventories at the hub. Crude oil stocks in Cushing declined 22 million barrels since the beginning of November and are now 17% below their five-year average (Figure 2). Other factors contributing to the recent declines in Cushing crude oil stocks include the opening of the 0.2 million b/d Diamond pipeline from Cushing to Memphis, Tennessee, as well as gross refinery inputs in the Midwest (Petroleum Administration for Defense District 2) reaching record highs for this time of year in both December and January, based on four-week averages. Many Midwest refineries are connected to the Cushing storage hub by pipeline.

Figure 2.

U.S. average regular gasoline and diesel prices increase

The U.S. average regular gasoline retail price rose 4 cents from the previous week to $2.56 per gallon on January 15, 2018, up 20 cents from the same time last year. Midwest gasoline prices increased eight cents to $2.51 per gallon, Gulf Coast prices increased over three cents to $2.28 per gallon, East Coast prices increased nearly two cents to $2.52 per gallon, and Rocky Mountain prices increased over one cent to $2.46 per gallon. West Coast prices remained unchanged at $3.01 per gallon.

The U.S. average diesel fuel price rose 3 cents to $3.03 per gallon on January 15, 2018, 44 cents higher than a year ago. Gulf Coast prices increased four cents to $2.83 per gallon, East Coast prices increased nearly four cents to $3.06 per gallon, Midwest prices increased three cents to $2.98 per gallon, and the West Coast and Rocky Mountain prices each increased one cent to $3.40 per gallon and $2.98 per gallon, respectively.

Propane inventories decline

U.S. propane stocks decreased by 3.7 million barrels last week to 58.0 million barrels as of January 12, 2018, 10.3 million barrels (15.1%) lower than the five-year average inventory level for this same time of year. Midwest inventories decreased by 1.8 million barrels, Gulf Coast and East Coast inventories each decreased by 0.9 million barrels, and Rocky Mountain/West Coast inventories fell slightly, remaining virtually unchanged. Propylene non-fuel-use inventories represented 4.2% of total propane inventories.

Residential and wholesale heating fuel prices increase

As of January 15, 2018, residential heating oil prices averaged $3.21 per gallon, 4 cents per gallon more than last week and nearly 58 cents per gallon higher than last year's price at this time. The average wholesale heating oil price for this week averaged nearly $2.23 per gallon, 3 cents per gallon more than last week and 50 cents per gallon higher than a year ago.

Residential propane prices averaged nearly $2.59 per gallon, almost 4 cents per gallon more than last week and 26 cents per gallon higher than a year ago. Wholesale propane prices averaged almost $1.23 per gallon, nearly 8 cents per gallon more than last week and 35 cents per gallon higher than last year's price.

For questions about This Week in Petroleum, contact the Petroleum Markets Team at 202-586-4522.

Tags: Canada , crude oil , Cushing , inventories/stocks , pipelines , rail , spot prices , weekly

Retail prices (dollars per gallon)

Retail price graphs
  Retail prices Change from last
  01/15/18 Week Year
Gasoline 2.557 0.035 0.199
Diesel 3.028 0.032 0.443
Heating Oil 3.214 0.040 0.578
Propane 2.586 0.036 0.260

Futures prices (dollars per gallon*)

Futures price graphs
  Futures prices Change from last
  01/12/18 Week Year
Crude oil 64.30 2.86 11.93
Gasoline 1.850 0.064 0.238
Heating oil 2.085 0.026 0.434
*Note: Crude oil price in dollars per barrel.

Stocks (million barrels)

Stock price graphs
  Stocks Change from last
  01/12/18 Week Year
Crude oil 412.7 -6.9 -72.8
Gasoline 240.9 3.6 -5.5
Distillate 139.2 -3.9 -29.9
Propane 58.007 -3.675 -14.238