Navarik Market Update

June 1, 2017

Canada’s first refinery since 1984 is set to open by the end of this summer, and although this is good news for producers of heavy crude, it has the potential to prolong a glut of diesel in North America given the grade of crude that will be fed into it. It would be reasonable to assume that owners Northwest Redwater Partnership and Canadian Natural Resource Ltd will initially pump out as much product as possible to recoup their fixed costs (margins bedamned) - but the market shouldn’t expect this to rationalize too quickly.

The United States is currently awash in diesel. Stocks and production are above their five-year averages, and Navarik data shows May distillate exports are up 1.9% year-over-year (a trend Navarik forecasts to continue into early June), suggesting that this marginal increase isn’t being taken off by domestic consumption. But Sturgeon is as also explicitly a bet on diesel as an input into freight transportation (which could stay resilient even if consumer demand stays muted) and as a diluent in pipelines to help ship Alberta bitumen south and west more cost-effectively.  These three markets may be enough for Sturgeon to stay competitive and continuously producing a diesel-heavy range of outputs, especially considering that 75% of its feedstocks will come from bitumen the province received in lieu of royalties rather than purchased outright.

With Sturgeon expected to produce about 40 thousand barrels of ULSD per day, against current US average ULSD production of approximately 480 thousand bpd, this project could have sizeable effects on the wider North American diesel market. If this is the case, Navarik Data is uniquely placed to advise – before anyone else in the market – on whether US refiners will respond by pushing their diesel out of the country to preserve local market pricing, take the hit at the pumps, or try and retool away from diesel production.


Figure 1

Source: Navarik Proprietary Data

Figure 2

Source: Northwest Redwater Partnership


Colin McCann is an Oil & Gas analyst with Navarik Corporation. The Navarik Data Products team analyzes Navarik's proprietary data sets and external sources to provide insights into the oil & gas shipping market. The resulting analysis enables physical and paper traders to see ship movements across the barrel before anyone else in the market.

To reach a Navarik Oil & Gas analyst email To reach Colin directly call 778-327-6917 or email

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