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Coming changes in Canadian oil prices

The long-awaited Canadian government-owned Trans Mountain oil pipeline expansion (TMX), valued at C$30.9 billion ($22.81 billion), is set to commence operations early next year. This move is expected to significantly influence North America's oil dynamics by redirecting crude primarily intended for the U.S. Midwest and Gulf Coast.

Once operational, the TMX project promises to pump an additional 590,000 barrels per day to Pacific ports. This augmentation is aimed at catering to the rising demand for heavy sour crude, especially from U.S. West Coast and Asian refineries. However, the project might experience a delay of up to nine months due to a proposed last-minute route alteration.

This new direction is anticipated to increase the prices by as much as $2 per barrel for U.S. Midwest oil refineries, notably those managed by prominent players like BP, Citgo Petroleum, Exxon Mobil, and Flint Hills Resources of Koch Industries.

Historically, since 2019, Canada has been the sole crude supplier to the Midwest. However, this dependency made Canadian oil producers susceptible to sharp price fluctuations, notably during times of pipeline congestions or bursts. For instance, last December witnessed a significant spill on TC Energy's Keystone pipeline. This incident escalated the Canadian crude's discount rate to over $33 a barrel, more than twice its regular discount.

Pipeline operator Enbridge, which is responsible for transporting the majority of Canada's 3.8 million bpd crude exports to the U.S., anticipates a decrease of up to 300,000 bpd in its Mainline system once TMX becomes operational. This additional pipeline capacity from Canada will likely minimize occurrences of crude congestions at the Alberta storage hub, Hardisty. Such a development will promote price stability and curtail volatility, information according to Reuters.

The Canadian pipeline expansion project, TMX, is bound to reshape the oil market landscape in North America, with implications for both suppliers and consumers.

Canadian Trans Mountain pipeline
Canadian Trans Mountain pipeline

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