Some collectable facts within this post that need archival.
From: CommanderCricket 8/23/2007 8:40:59 AM
2 Recommendations of 89799
Very good explanation why shut-in Mexican oil production may, or may not, have on the US market for light sweet crude
By: Mathanalyst
Posted as a reply to msg 69855 by northbeachfl2000
Re: Back to Business - Damage at Cantarell
Northbeach, et al: While most, if not all of you posting here, may already know this, I offer the following for your consideration as you do your analysis of the impact that shut-in Mexican oil production may, or may not, have on the US market for light sweet crude (CL).
While “crude oil” in the abstract may be viewed as a fungible commodity (as the media so often reports), there are roughly 160 grades of crude oil traded around the globe, and only a few of these grades can be classified as NYMEX CL…a fact that has bearing on your analysis. For example, Pemex Exploration and Production (PEP) produces four types of crude oil:
-- Altamira, a heavy crude oil;
-- Maya, a heavy crude oil;
-- Isthmus, a light crude oil; and
-- Olmeca, a very light crude oil.
Strictly speaking, none of these grades of Mexican crude oil meet the NYMEX specification for CL, and hence none of these grades are ever delivered under the NYMEX CL futures contract, nor do they have the properties necessary to serve as substitutes for CL. Consequently, the supply-demand-storage balance, and pricing dynamics, in the cash/spot market for those grades of crude oil that DO meet the specification for CL (and which establish the associated price arbitrage relationships driving the CL futures market) are almost entirely centered around what happens in and around the land-locked Cushing Oklahoma delivery hub…and since no Mexican crude oil production is imported into the Cushing hub, and no crude oil is exported out of Cushing (virtually all crude supplies at Cushing are used solely within PADD-2) impending shortages of crude imports from Mexico will not in any substantial way influence the price of NYMEX CL. This does not mean that impending shortages of imported Mexican crude oils won’t impact the price of supplies in the Gulf region…they most certainly will. But because of the essentially one-way flow of specific grades of crude oil into Cushing, the supply-demand balance there isn’t directly impacted by what goes on in the Gulf, unless there is a supply disruption associated with one, or more, of the specific grades of imported crude oil that actually meet the NYMEX CL specification. For reference, here are the crude oils that are deliverable under the NYMEX CL specification:
CL Deliverable Grades...per the NYMEX CL Specification:
Specific domestic crudes with 0.42% sulfur by weight or less, not less than 37° API gravity nor more than 42° API gravity. The following domestic crude streams are deliverable: West Texas Intermediate, Low Sweet Mix, New Mexican Sweet, North Texas Sweet, Oklahoma Sweet, South Texas Sweet.
Specific foreign crudes of not less than 34° API nor more than 42° API. The following foreign streams are deliverable: U.K. Brent, for which the seller shall receive a 30 cent per barrel discount below the final settlement price; Norwegian Oseberg Blend is delivered at a 55¢–per–barrel discount; Nigerian Bonny Light, Qua Iboe, and Colombian Cusiana are delivered at 15¢ premiums
FWIW, my sense is that any shortages of Mexican imports that may result from Hurricane Dean will drive up the price of Louisiana Light Sweet (LLS), Mars blend and other comparable Gulf centric crude grades, but won’t have any appreciable impact on the supplies or price of NYMEX CL. This is because there is no affordable way to meet Gulf shortages by moving CL from Cushing to the Gulf at this time. If there were, the price of CL would almost certainly trade higher.
r/RBT |
