Fortune Cookies and Global Light Oil Supply

I recently opened the world’s longest sentence ever found in a Fortune Cookie, which read: “Only shoot the messenger when you don’t like the message – not when you don’t understand it.” I like those super-sized cookies!

Recently, many people in the media, and most consumers, along with some in the oil industry, and certainly me, were, and still are, trying to catch the knuckleball of a recent Reuters headline proclaiming “Following long ban, US could dominate global light oil supply.” The media of course will interpret this to mean that the U.S. crude oil export gates are open and that U.S. crude will now be exported all over the world thus saving the economies of the planet.

But what about carbon emissions, climate change, and let’s not forget the mid-terms?

Oh well. Oh wrong!

U.S. consumers will interpret this as the U.S. government selling out to “Big Oil,” deflating the country’s claim to oil independence, restoring dependence on crude oil supply to the wing nuts at OPEC, and also increasing gasoline pump prices since WTI crude prices will increase based on world demand for this new export source – the US of A.

Oh well. Oh wrong!

This headline, and derivations of it, caused the stock value of Mid-Western-based refiners (Valero, Tesoro and Western amongst others) to drop as much as $9 per share over night. These are refiners who buy crude on the spot market and are not shale oil or conventional crude oil producers. If in fact, if U.S. domestic crude were to “dominate global supply” then their crude costs, based on supply and demand would increase and the crack spreads decrease as would their profits.

Oh well. Oh wrong!

This headline is courtesy of a political game of bait and switch, and it’s the readers who are the bait. What is not explained is what is meant by the “light oil” that could “dominate global supply.” I would not blame the consumer nor the media for looking at this as light crude of the WTI variety, but this is far from reality.

The much ballyhooed, We-Are-The-Champions Bakken and east Texas shale oil is extremely light and volatile making it more or less useless to Gulf Coast refiners who have geared themselves to receive heavy sour Canadian crude, which they can’t get in quantities needed due to lack of pipelines, and the equally lacking political backbone of President Barack Obama. The product approved for export is processed condensate, which is the shale oil stripped of gases using tea kettle level distillation, so it meets the specifications of a petroleum product rather than the politically sensitive U.S. crude oil definition.

This product is somewhat useful as a feedstock for the petrochemical industry, and perhaps as a Naphtha ingredient (a very light crude oil derivative in gasoline production), as well as a useful diluent for dilbit. What the governmental talking heads don’t trumpet is that this condensate is of very low market value – $10 to $30/bbl below crude – and  because there is no pipeline infrastructure to get it to the export ports, transport by rail or barge decreases the value by another $4 to $9/bbl.

Condensate could be blended with conventional U.S. crude and oil sands crude for export, and maintain, if not increase employment directly and indirectly in the patch while keeping transportation fuel costs low due to an overall lower feedstock price. But you won’t find that headline in a Fortune Cookie, or on a Reuters’ newsfeed – that would be too complicated, and one the political messengers wouldn’t be able to read or understand which would be a perfect match because we don’t read or understand them either.

~The Grouch

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Roger McKnight is the Chief Petroleum Analyst with En-Pro International Inc.
Roger has over 25 years experience in the oil industry, and has held senior marketing management positions responsible for national and international accounts. He is the originator of the card lock concept of marketing on-road diesel that is now the predominant purchase method of diesel in Canada. Roger's knowledge of the oil industry in North America, and pricing structures has resulted in his expertise being sought as a commentator by local, national, and international media. Roger is a regular guest on radio and television programs, and he is quoted regularly in newspapers and magazines across Canada.

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