A new Chinese refinery is pushing the price of heavy crude oil higher after a prolonged period of depression.
Heavy crude has traditionally traded at an often significant discount to lighter and sweeter grades but now producers of the heavy varieties of oil are set to see some higher prices as PetroChina starts up a new refinery, Bloomberg reports.
Originally designed to work with Venezuelan crude, the new refinery will now be using heavy crude from Colombia, Ecuador, and Canada for its operations, the report noted, citing unnamed sources.
According to them, PetroChina has contracted at least 8 million barrels of heavy crude from these three countries, to load in April. And prices are already reflecting this tick-up in demand: Canada’s Cold Lake sells at a discount of $11.50 to Brent crude, which is down from about $20 per barrel earlier this year.
More bullish factors have lined up for heavy crude prices, too, including the end of maintenance season in the United States, which would mean a rise in demand heavy crude grades. Another bullish factor is limited supply from Venezuela and Ecuador, according to Bloomberg’s sources.
Venezuela’s oil exports have shrunk considerably as the government investigated unpaid oil delivery bills and Ecuador recently had to reduce production amid anti-industry protests in several communities from oil-producing parts of the country.
The protests prompted state-owned Petroecuador to declare force majeure on production from these regions, reducing the available amount of heavy crude.
The new refinery, located in the southern Chinese province of Guangdong, is currently ramping up, after trial runs last year. At capacity, the refinery will be able to process 400,000 barrels of crude daily. It can run on heavy crude only.
Exxon is among the investors in the mega-refinery project as part of its strategy to expand its global chemicals manufacturing capacity.