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 soursin 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 EIAforecasts 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.
