We expect March liquids output fell by 0.28 mb/d m/m following a plantwide outage at Syncrude Mildred Lake which impacted both Canadian synthetic output and the production of synbit blend (a combined of bitumen and synthetic crude). Indeed, our pipeline model suggests flows on both Pembina’s AOSPL (from Mildred Lake) and Enbridge’s Athabasca pipeline (from Suncor’s Fort McMurray complex) dropped in March. We also expect reduced output in April, in line with Suncor’s guidance suggesting shipments from Mildred Lake would only resume in May. Moreover, April and May are usually the seasonal low points for Canadian oil sands output as cold weather impacts production operations. Indeed, third party inventory reports suggest Canadian crude stocks drew by some 6 mb between March and end-April, as shippers scrambled to find supplies in order to meet strong US export demand. This comes despite extremely weak Western Canadian refinery runs, which tracked 0.38 mb/d in April, down by 0.12 mb/d y/y. However, despite the continued inventory draws in Canada, differentials did weaken somewhat m/m for the June pipeline cycle. Indeed, whilst much of the oil sands output growth this year is Q4 17 loaded, Canadian production typically picks up from Q3, meaning the prior quarters’ base for Q4 17 gains will already be elevated—suggesting Canadian differentials will come under renewed pressure as the year progresses—and we expect heavy differentials will have to weaken to the point to open up rail arbs in order to evacuate the extra barrels.
Meanwhile, combined Canadian crude oil, condensate and C5+ inventories built by 3.1 mb m/m in February to 123.9 mb (lower by 2 mb y/y), driven by higher stocks held at refineries (up by 1.7 m/m to 50.7 mb) as Canadian runs fell by 87 thousand b/d m/m to 1.7 mb/d. The stockbuild was driven by Alberta (+1.3 mb m/m), Ontario (+1 mb m/m) and Quebec (+1 mb m/m). Production also weighed, with mined bitumen output rising by 40 thousand b/d m/m in February and offsetting an 11 thousand b/d decline in light conventional output. This production growth took total Canadian liquids output to just over 5 mb/d, a record high, and up by a huge 0.39 mb/d y/y. We expect total Canadian liquids production will grow by 0.18 mb/d this year (synthetic +25 thousand b/d y/y, bitumen +97 thousand b/d y/y and NGLs +55 thousand b/d y/y). Canadian imports fell in line with lower throughputs in February, to 0.86 mb/d, lower by 35 thousand b/d m/m. Tanker tracking data indicate waterborne arrivals into Quebec, and Eastern Canada fell to 0.38 mb/d, driven by lower unloading’s at NARL’s Come by Chance refinery which had planned turnarounds at its 27 thousand b/d reformer and 21 thousand b/d naphtha hydrotreater.
Canadian March demand rose sharply (+4% y/y), even with a weak LPG reading which will be revised higher. Diesel demand jumped by 83 thousand b/d as rising rig counts supported.