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

(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…

…The looming clash of barrels comes at a time when oil markets already face a global glut expected to last for a year or longer.

Large volumes of foreign heavy oil reaching the Gulf Coast will give many U.S. refiners more choice after they have upgraded their systems to process cheaper, heavier crudes. The new supply also marks a breakthrough in Canada’s years-long effort to bring its growing Alberta oil sands crude output to new markets…

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