News
03/01/25
Viewpoint: US sour values poised to maintain support
Houston, 3 January (Argus) — US sour crude prices are poised to maintain recent
highs if increased US Gulf coast refinery runs continue to meet market
expectations of a tight market. US Gulf medium sour Mars is averaging a near
30¢/bl premium to the Nymex-quality WTI benchmark for the February US trade
month to date, and held a roughly 65¢/bl premium during the January trade month,
the highest level since July. January Mars averaged around $2.40/bl below March
Ice Brent, marking its narrowest average discount to Ice Brent two months
forward since the August trade month. US Gulf sours reached multi-year highs on
18 December supported by tight supply and high demand. Refinery runs have
increased with improving margins, tightening the supply of sour crude in the US
and further boosting differentials. Refinery runs nationwide rose last week by
39,000 b/d to 17mn b/d but were 89,000 b/d lower than the same week in 2023,
according to the Energy Information Administration (EIA). Companies were also
heard short-covering US sours in an already tight market, likely exacerbated by
end-of-year inventory drawdowns for tax purposes. Recent higher prices follow
much lower relative values for Mars starting in the fall when refinery runs fell
because of unfavorable margins, maintenance and US Gulf coast hurricane-related
outages combined with lower export demand. Mars exports have been limited by
competitive Middle Eastern term pricing for shipments to Asia-Pacific and
European destinations, despite the continuation of Opec+ production cuts
tightening supply. Also, blending has emerged in China for TMX-sourced Canadian
heavy crude with light Murban as a Mars replacement . Offshore pipeline
maintenance in October also pushed typically Texas-delivered volumes over to the
Louisiana Gulf coast, adding pressure to the medium sour crude market in the
region. But increased US Gulf refinery demand is leading to higher heavy
Canadian crude prices at the US Gulf coast, alongside support from Trans
Mountain Expansion (TMX) pipeline exports and higher US midcontinent refinery
demand tightening supply. Western Canadian Select (WCS) Houston averaged around
a CMA Nymex -$4.00 for January trade. The January WCS Houston discount to Mars
averaged about $4.60/bl but was inside $4/bl for November and December volumes.
The higher Canadian crude prices are making it less economical for US refiners
to blend heavy low-TAN imports with Permian WTI as a cheaper alternative
substitute for Mars or other medium sours. Tax-related end-of-year inventory
draw downs had tightened the market heading into the new year, but this was
exacerbated by the US Strategic Petroleum Reserve (SPR) being slated to receive
2.5mn bl of domestic sour crude deliveries in the first three months of 2025 .
However, LyondellBasell's plan to begin shutting down its 264,000 b/d Houston,
Texas, refinery starting in January and stop refining crude completely by the
end of the first quarter will reduce Gulf coast sour demand. Between May and
September, the facility imported just under 200,000 b/d on average, with roughly
80pc being Canadian and Colombian sour crudes. Offshore US Gulf production is
also expected to increase, which could ease a tight market and weigh on
differentials. Chevron brought production from its 75,000 b/d Anchor platform
into the Mars system in 2024, while Southern Louisiana Intermediate (SLI) and
Texas-delivered SGC and HOOPS flows will receive crude from new facilities in
the coming year. But EIA forecasts show total US Gulf production essentially
flat from 2023 as new output is offset by natural declines. Other
price-influencing factors in the coming year are less certain. Concerns
surrounding the potential impact of US president-elect Donald Trump's plan to
impose a 25pc tariffs on all imports from Canada and Mexico have bolstered sour
crude prices in the US over recent weeks. Additionally, US medium sour crudes
have been supported by Opec production cuts, with the recent decision to delay
unwinding those cuts yet again, adding to the January value boost. The next Opec
and Opec+ meetings are scheduled for 28 May. By Mykah Briscoe and Amanda Smith
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