BP’s Whiting Refinery Outage Shakes Oil Markets
Published in Oil Industry News on Friday, 14 August 2015
Not all oil refineries are created equal.
The shutdown of the biggest crude unit at BP’s massive Whiting refinery in Indiana has, once again, started to exercise an outsized influence over oil markets.
Since shutting down on Saturday, reportedly after the discovery of holes in some of the 240,000-barrel-a-day crude distillation unit’s piping — a possible fire risk — both US crude and Brent markets have been pushed around by every snippet of news emerging from the plant.
The refinery carries weight in the market not just because it is the biggest in the US Midwest but because of where the majority of its crude is sourced.
Oil from Canada’s tar sands, normally delivered into Whiting, will be redirected into the Cushing, Oklahoma storage hub, the delivery point of the US benchmark West Texas Intermediate contract. BP also has a pipeline, called BP1, which runs straight from Cushing into the refinery.
Oil traders closely watch Cushing stock levels every week to understand how supplies are faring. An outage at Whiting’s main crude distillation unit could add almost 1m barrels to Cushing every four days as long as it is out.
Talk in the market is that the refinery unit will be down for at least a month, possibly two. BP acknowledges the unit, called Pipestill 12, is down and says it is working to return it as quickly as possible, without giving a time estimate. The refinery’s total capacity is more than 410,000 b/d.
The effect on oil prices has been immediate and stark. WTI’s discount to international benchmark Brent has risen above $7 a barrel, the widest since May.
Outright WTI prices have hit a six-year low, to below $42 a barrel. Petrol prices in the US Midwest have soared, with one analyst estimating this week that drivers in the region are paying prices normally associated with crude closer to $100 a barrel.
Hardest hit of all has been Canadian tar sands producers. Whiting underwent major upgrade work in 2013 to allow Pipestill 12 to process more of Canada’s heavy, thick — and cheap — tar sands. Prices for Western Canadian Select have halved since early July, down to about $20 a barrel this week.
In 2013 the upgrade work at Whiting contributed to the so-called Brent-WTI spread — a favourite of hedge funds as well as physical traders — blowing out to almost $20 a barrel.
While the spread has stabilised this year, averaging about $6 a barrel, it could be in for a volatile period as BP engineers try to fix the Whiting unit.
Genscape, which uses infrared cameras to measure pipeline flows and aerial photography to gauge how much oil is in Cushing, on Thursday said stocks at the hub had risen 889,455 barrels, or 1.5 per cent, between August 7 and 11 already.
Some traders are now asking if Cushing could become saturated, with the hub already running at 80 per cent of its 71m barrel capacity.
One of the few beneficiaries has been Brent, which is likely finding a marginal bid from traders playing the spread, even as it is pressured by the glut in the global market. Brent is heading for its first weekly gain in seven weeks, having edged up almost a dollar since last Friday.
Source: www.ft.com