Rising oil inventories send prices tumbling

CALGARY Canadian heavy crude oil prices fell sharply this week as oil supplies surge, inventories rise and railway shipments are unable to keep pace with rising production.

The value of multiple blends of Canadian oil fell sharply relative to the U.S. benchmark price West Texas Intermediate.

Data from AltaCorp Capital shows the discount for Western Canada Select, a heavy blend, rose above US$27 per barrel, marking the widest discount for Canadian heavy crude since July.

In addition, the investment bank’s data shows that light oil blend Edmonton Par is now trading at a US$16.16 discount per barrel to WTI — the steepest discount for that blend since 2014.

The restart of the Syncrude oilsands project is the most “obvious” reason for the drop in Canadian oil prices, but it’s not the only cause, Auspice Capital Partners founder Tim Pickering said.

Syncrude, which has production capacity of 350,000 barrels of oil per day, completely shut down in late June following an unexpected power outage, and has been slow to come back online as the joint-venture project’s biggest owners — Suncor Energy Inc. and Imperial Oil Ltd. — repair the facility.

The last of Syncrude’s three cokers, a component of the project’s bitumen upgrader, is “ready to come back online now,” Suncor president and CEO Steve Williams said at an investor conference on Wednesday.

Williams also said the company has been steadily ramping up production from its 194,000-bpd Fort Hills oilsands project.

As oilsands production from the two projects is either coming back online or coming into the market for the first time, inventory levels in the Canadian market and U.S. market have been rising.

Western Canadian oil inventories rose 4.3 million barrels to a record high of 36.3 million barrels the week ended Aug. 31, according to research firm Genscape.

In the U.S., inventories of crude oil, gasoline and distillates rose by 700,000 barrels this week at a time when analysts expected a draw of 3.7 million barrels, Raymond James analyst Chris Cox wrote in a Thursday research note. Financial Post