Low Canada crude prices boost refiners' profits

Thu Apr 26, 2012 1:31pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Imperial Oil Ltd's (IMO.TO: Quote) refining profit hit a record high in the first quarter as the company took advantage of a ballooning gap between bargain-basement discounts for Canadian crude oil and strong prices for gasoline and other refined products.

Husky Energy Inc (HSE.TO: Quote) also reaped rewards from the drop in prices for Canadian barrels compared with the price for international crudes, the result of burgeoning supplies in the U.S. Midwest and Midcontinent region, the major market for Canadian crude.

Pure producers of Canadian oil, especially heavier grades such as Western Canada Select, struggled as the price slumped at times to around 60 percent of Brent, the international benchmark. It has since recovered to more normal spreads.

Producers with refining and retailing operations, called downstream assets, fared much better, however.

"If you've got downstream joint-venture operations, or you're an integrated company with downstream operations, what you're not making at the wellhead you're going to make back to some degree on the cheaper input cost at your refinery," said Martin King, analyst at FirstEnergy Capital Corp.

"Presumably you'll capture some of the upside on the refined products side as well."

During the quarter, Brent crude climbed above $120 a barrel, but Canadian oil is priced against U.S. Benchmark West Texas Intermediate, which mostly hovered just above $100, due partly to a glut of supplies in the Midwest as well as the massive Cushing storage hub in Oklahoma.

In March, Western Canada Select sold for around $35 a barrel under the WTI at times, which meant bargains for refineries, such as Imperial's that do not have to rely on the more expensive imported barrels.   Continued...