According to Bloomberg, PetroChina is launching a new refinery. Until recently, heavy crude oil traded at a significant discount compared to lighter grades. Now, producers of heavy grades of oil will face higher prices.
The new refinery will now use heavy crude from Colombia, Ecuador and Canada for its operations.
PetroChina has contracted at least 8 million barrels of heavy crude from these three countries, to load in April. And prices are already reflecting this tick-up in demand: Canada's Cold Lake sells at a discount of $11.50 to Brent crude, which is down from about $20 per barrel earlier this year.
More bullish factors have lined up for heavy crude prices, too, including the end of maintenance season in the United States. Another bullish factor is limited supply from Venezuela and Ecuador, according to Bloomberg's sources. Venezuela's oil exports have shrunk considerably as the government investigated unpaid oil delivery bills and Ecuador recently had to reduce production amid anti-industry protests in several communities from oil-producing parts of the country.
The new refinery, located in the southern Chinese province of Guangdong, is currently ramping up, after trial runs last year. At capacity, the refinery will be able to process 400,000 barrels of crude daily. It can run on heavy crude only.