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S&P Global 26 Apr, 2024 Global

Daily Update: April 26, 2024

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

TMX Pipeline Opens New Markets for Canadian Crude

When you can sell to only one buyer, you are locked in at whatever price that buyer is willing to pay. This has been the lesson of Canada’s oil producers who have been forced to sell most of the crude coming out of Canada’s oil sands to US refiners on the gulf Gulf Coast. According to S&P Global Ratings, Western Canadian Select (WCS) heavy sour crude has been compared to West Texas Intermediate (WTI). There are several reasons for that. One is that WTI is a lighter, sweeter oil that is easier to refine due to lower sulfur content than heavy sour crude. Another reason for the steep discount is that Canadian producers had to sell to US Midwestern or Gulf Coast refiners due to limited pipeline availability.
 
That’s about to change. On May 1, Trans Mountain Corp. will almost double capacity to transport Canadian crude to the West Coast through the TMX pipeline. The pipeline expansion cost approximately $34 billion and was plagued by delays and cost overruns.
 
Those refineries capable of processing heavy sour crude may see some margin compression due to the new pipeline. Refining margins have decreased since 2022, when they hit a record high. Gulf Coast refineries will now have to compete with West Coast and Chinese refineries for Canadian crude. When refineries bid against each other, prices tend to go up and margins go down.
 
The first cargo to be shipped through the TMX pipeline is reported to be going to China's Sinochem, according to S&P Global Commodity Insights. Sinochem has three refineries in eastern Shandong. Market participants have suggested that the introduction of Asian customers for Canadian crude will bring arbitrage opportunities. In addition, the increase in crude exports out of the West Coast of Canada will put further demand on existing Aframax shipping capabilities.
 
The increased volumes now available through the TMX pipeline will offer some relief for Canadian crude producers from the deep discounts they have had to offer. However, with increasing crude production from the oil sands region of Alberta, it is only a matter of time before this additional capacity is maxed out. By some estimates, 80% of the crude flowing through the pipeline has already been committed for 15- to 20- year contracts. The remaining 20% is reserved for spot markets, a percentage mandated by Canadian regulators.
 
“The government of Alberta forecasts its production to increase from approximately 3.4 million bbls/d to over 3.5 million bbls/d in 2025,” S&P Global Ratings wrote in a recent Credit FAQ on US refiners credit quality. “We believe this could narrow the WCS-WTI differential to the $12-$15 range, similar to the existing tariff to get WCS to the Gulf Coast and similar to the proposed tariff for the TMX expansion.”
 

Today is Friday, April 26, 2024, and here is today’s essential intelligence.

- Written by Nathan Hunt.

Economy

SPIVA Japan Scorecard 2023: Misfortune For Japanese Stock Pickers

Since the first publication of the S&P Indices Versus Active (SPIVA®) US Scorecard in 2002, S&P Dow Jones Indices has regularly reported on the relative performance of actively managed funds versus benchmark indices across an increasing number of global fund markets and fund categories.

—Read the article from S&P Dow Jones Indices

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Capital Markets

Asia-Pacific Banking Country Snapshots: Stable Ratings As Property Risks Persist

A worsening in property-sector stress is the key risk stalking the Asia-Pacific financial institutions sector in 2024. "Asia-Pacific banks are managing property sector risks and the vast majority have stable rating outlooks," said S&P Global Ratings credit analyst, Gavin Gunning. "We see limited upside ratings potential, given persistent property sector risks, higher-for-longer interest rates and weaker economic growth. More so, if downside risks emerge in property or other areas, it could be tougher for banks to maintain outlooks at current levels."

—Read the article from S&P Global Ratings

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Global Trade

What Do UK, US Sanctions On Russia-Origin Metal Mean For Global Nickel Market?

On April 12, the US and UK governments imposed sanctions on Russia-origin metals for the country's invasion of Ukraine. To comply with the sanctions, the London Metal Exchange (LME) announced a ban on the delivery of Russia-origin nickel, aluminum and copper produced on or after April 13 into its warehouses. According to S&P Global Market Intelligence estimates, Russia is the world's second-largest producer of refined class 1 nickel, the only LME-deliverable primary nickel product, behind China.

—Read the article from S&P Global Market Intelligence

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Sustainability

Listen: Does The UK Need The North Sea For Its Energy Future?

As a UK general election looms, energy security and the transition to net-zero are high on the agenda. In this episode of the Commodities Focus podcast, S&P Global Commodity Insights experts sift through the policy options, from windfall taxes to licensing bans, and discuss why they matter, not just for the UK, but for Europe and beyond. Nick Coleman, senior editor for oil news, is joined by Gethin Baker, senior technical research analyst specialising in the North Sea, and Stuart Elliott, news reporter focusing on the UK and European gas markets.

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights

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Energy & Commodities

Eni Gains Mexico OK For Exploration Well That Could Form Country's First Private Oil, Gas Cluster

Eni Mexico on April 23 received authorization from Mexico's upstream regulator to drill an exploration well called Yopaat 1 in its Area 9 blocks the Italian company operates in the deepwater Gulf of Mexico. Yopaat is one of the three wells Eni Mexico is considering to develop an oil and natural gas production cluster in the area with projects that may not be viable on their own, but which could be commercially attractive if developed together.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Semiconductor Digest: A Roundup Of The Latest Developments

AI, particularly the training of generative AI large language models (LLMs), continues to drive the majority of semiconductor market activity. NVIDIA Corp.'s launch of its Blackwell graphics processing unit (GPU) in March at the company's GPU Technology Conference (GTC) was the centerpiece and attracted record crowds of developers, data scientists, GPU cloud clustering vendors and systems makers to San Jose, Calif.

—Read the article from S&P Global Market Intelligence

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