August 29, 2017 / 10:26 PM / 2 years ago

Heavy differentials widen on Harvey refining outages

Crude oil tanks at Enbridge's terminal are seen in Sherwood Park, near Edmonton, Alberta, Canada November 13, 2016. REUTERS/Chris Helgren

CALGARY, Alberta (Reuters) - Canadian heavy crude differentials hit their widest level in five months on Tuesday as more U.S. Gulf Coast refineries shut down in the wake of Hurricane Harvey.

Torrential rain and catastrophic flooding followed the hurricane that slammed into Texas over the weekend, forcing refiners to shutter operations as a precaution.

At least 3.65 million barrels per day of refining capacity is offline, nearly 20 percent of total U.S. capacity, slashing demand for crude.

Canada exports around 412,000 bpd of mainly heavy crude to the Gulf Coast region, around 14 percent of its total exports to the United States, and prices sagged as traders anticipated barrels backing up in Alberta.

Western Canada Select heavy blend crude for October delivery last traded at $10.75 per barrel below the West Texas Intermediate benchmark, according to Shorcan Energy brokers, having dipped to $11.40 per barrel below WTI earlier in the day.

On Monday WCS settled at $10.35 per barrel below the benchmark.

Traders in Calgary said it was difficult to know how long the impact of Harvey, which became a tropical storm after making landfall, would last, with much depending on the speed at which Gulf Coast refineries could return to full production and how fast crude storage tanks fill up.

“Storage inventories are pretty low right now, but levels go up quickly when there’s over 3 million barrels per day of refining capacity offline,” one crude trader said. “It’s unprecedented flooding, so who knows what is going to happen.”

Light synthetic crude prices rose to reach $1.15 per barrel over WTI, having settled at 90 cents per barrel over the benchmark on Monday.

Reporting by Nia Williams; Editing by Jonathan Oatis

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