The holy trio of stupidity: Government, regulation and protestors have combined in one for the ages and traders may have found a way to make millions from it.
Canadian oil is trading at $31 discount to US crude because of a massive production/refining glut.
First of all, Canada doesn’t have the capacity to refine its oil because of the abysmal failure of successive governments to make it happen, so it exports most of its raw oil to the US. With Bakken US production coming on line, the refineries there are at capacity and oil can’t get to the Gulf Coast because Keystone XL is forever in limbo, among other reasons.
Canada also can’t export raw crude elsewhere because there are no pipelines to the West Coast or export facilities there. Great planning on that front as well.
Basically, there is no way to get Canadian crude, selling at $63/barrel to Europe where it could sell at $110/barrel. Or is there?
It’s illegal in the export unrefined crude from the US but there is an exception if the oil comes from elsewhere (Canada) and isn’t mixed with US oil.
Now, the FT reports that traders are trying to find a way to get Canadian oil to the Gulf coast without mixing it with US oil (and regulators may be willing to allow a minimal degree of incidental contact between US and Canadian crude molecules as a result of sequential use of the same pipeline or tank so they can load it). They would then bring it to the Bahamas and export it further from there.
The inefficiency of the entire operation is truly mind-boggling but that’s the way to get rich in places where governments are truly broken.
