Conversions at BP's Whiting plant and Marathon's Detroit refinery, along with an upgrade completed last year at Phillips 66's Wood River plant in Illinois, will boost heavy oil consumption in the region by 470,000 barrels a day, Ed Morse, global head of commodities research at Citigroup Inc. in New York, said in a July 6, 2011, report. Light crude demand will fall by 430,000 barrels a day at the same plants, he said.

“You already have a situation where demand is destroyed for light sweet crudes such as WTI” as Midwest refineries upgrade to process more heavy oil, said Stephen Schork, president of the Schork Group Inc., an energy-advisory company in Villanova, Pennsylvania.

Supplies of heavy oil may rise after Imperial Oil Ltd.'s Kearl oil sands project, about 44 miles (70 kilometers) north of Fort McMurray, Alberta, begins production at 110,000 barrels a day by the end of the year.

Canadian producers are attempting to cut their reliance on the Midwest as the main destination for their exports. Enbridge is working to expand its capacity to ship oil eastward to increase the amount of oil that can move from Alberta to Quebec and the U.S. East Coast.

Eoin Treacy's view Following a steep decline from $110 WTI Crude Oil prices firmed in the region of the psychological $80 and bounced to $90 but have since fallen back and will need to continues to hold above the recent lows if the mean reversion rally is to continue to be given the benefit of the doubt.

The crack spread on which refiners depend for their margins has remained steady as oil prices have declined. The 3:2:1, 2:1:1 and 5:3:2 spreads all have similar patterns and have mostly held above the long-term range over the last two years. (Also see Comment of the Day on March 20th).

Holly Frontier Corp and CVR have similar patterns to the above crack spreads. They both bounced impressively from their respective 200-day MAs and are now testing their highs. A clear downward dynamic would be required to check potential for some additional upside.

Western Refining, Delek US Holdings and Sunoco formed first steps above their respective bases from early 2011 and broke out to reassert medium-term demand dominance over the last couple of months. While they are becoming increasingly susceptible to mean reversion, sustained moves below their respective 200-day MAs would be required to question medium-term scope for additional upside.

Tesoro and Valero continue to range within their first steps above their respective bases.