RPT-U.S. refiners seek alternatives to crude from Canada oil sands

Thu May 12, 2016 7:00am EDT
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(Repeats report originally published May 11, no changes to headline or text)

By Catherine Ngai and Marianna Parraga

NEW YORK/HOUSTON May 11 (Reuters) - U.S. Midwest refiners are rushing to secure alternatives for crude supply as they worry about prolonged outages after a raging wildfire in Canada shut nearly half of production capacity from the vast oil sands.

Even with some 1 million barrels per day in Canadian production capacity still offline due to the massive wildfire, sufficient U.S. supply is no problem, traders said. They pointed to record crude stocks at the U.S. hub of Cushing, Oklahoma, swelling domestic supplies as well as growing imports from Latin America, West Africa and the Middle East.

Still, they said, refiners with a large appetite for Canadian crude may have trouble getting alternative supplies fast enough. Those facilities may include BP PLC's Whiting, Indiana refinery and Phillips 66's Wood River, Illinois, refinery.

For now, they will pull crude from their own storage tanks or get it from Cushing or the Gulf, reversing trade flows that have prevailed during the U.S. shale boom, traders and analysts said.

But some refiners without accessible crude supply and with tighter margins may have to cut refinery runs, analysts said. This could exacerbate the swollen U.S. crude glut and add more pressure to oil prices.

While U.S. refinery margins saw a big spike on Wednesday, they are below their five-year average for this time of year, Reuters Eikon data showed.

And refiners in the eastern part of the U.S. Midwest, still reeling from the unplanned Keystone pipeline outage last month, will be left without Canadian supply, said Dominic Haywood, an analyst at Energy Aspects in London.   Continued...