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High Noon on oil prices: OPEC vs U.S. Shale

From an article by Catherine Ngai published on 6 Jan 2015 by Reuters under the headline: Screen Shot 2015-01-06 at 21.31.03

“High Noon on the Gulf Coast: Canada, Saudi oil set for showdown”

NEW YORK (Reuters) – As a test of wills between OPEC nations and U.S. shale drillers fuels a global oil market slump, a brewing battle between Canadian and Saudi Arabia heavy crudes for America’s Gulf Coast refinery market threatens to drive prices even lower.

While the stand-off between the oil cartel and U.S. producers of light, sweet shale oil has captured the limelight in recent months, the clash over heavier grades – playing out in the shadowy, opaque physical market – may put even more pressure on global prices that have halved since mid-2014.

Two factors will come into play over the next few weeks: From the North, new oil pipelines will pump record volumes of Canadian crude to the southern refineries, many better equipped to process heavy crudes than lighter shale oil.

From the Middle East, top exporter Saudi Arabia is offering crude at discounted prices in an attempt to defend its remaining share of the important regional market, which has shrunk by more than half in recent months.

Crude oil inventories in the U.S. Gulf have risen to nearly 200 million barrels, a record high for late December and up some 15 percent from a year earlier.

The build-up comes as Saudi Arabia shifts its focus to fiercely defend what remains of its market in the United States – the world’s largest consumer of oil.

Until recently, it seemed to be holding its own in part thanks to a major expansion of its joint-venture Motiva Enterprises refinery.

Saudi crude sales to the U.S. Gulf rose by a third to a record high of nearly 1 million bpd in the two years to 2012, a period where gushing shale production had begun to displace foreign suppliers.

But this year it has begun to lose ground, with shipments tumbling to 461,000 bpd in October, data from the U.S. Energy Information Administration showed.

Ironically enough, the decline was driven partly by a one-third cut in imports by Motiva, jointly owned by Saudi Aramco and Royal Dutch Shell.

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