FINANCIAL POST

CANADIAN HEAVY OIL TRADING AT ‘OUTRAGEOUS’ $40 DISCOUNT.

CALGARY• Canadian oil producers are missing out on a recent rally in global oil prices as the discount for domestic crude flirts with alltime highs in recent weeks.

“It has been ridiculous — it’s been outrageous, actually,” said Martin King, director of institutional research at GMP FirstEnergy, about the nearrecord discounts facing Canadian crude oil production.

The spike can be attributed to Canada’s full oil export pipelines, combined with a slow uptake in crude-oil-byrail shipments and, recently, production outages at two important U.S. refineries.

While the West Texas Intermediate benchmark has steadily climbed over US$71.89 per barrel — drawing the ire of U.S. President Donald Trump, who blamed OPEC for high prices — the main Canadian oil benchmark has at times traded for less than half that price.

King said Western Canada Select, a blend of heavy oil barrels, was trading at a discount of US$34.50 per barrel at mid-day on Wednesday, or roughly half of WTI prices.

Some WCS contracts have traded at a US$40-per-barrel discount to WTI but King says those were small trades of high-sour, heavy barrels which traditionally trade at a discount to the lighter WTI oil benchmark.

“It may be not quite a record, but it’s pretty damn close,” King said, referring to the all-time high set on Nov. 5, 2013, when WCS traded at a US$42-per-barrel discount.

Rory Johnston, commodity analyst at Scotiabank, said in a report Wednesday that brokers in Calgary are talking about Canadian heavy oil futures trading hands at all-time high discounts of more that US$40 per barrel under WTI in late September.

“While pipeline bottlenecks are most visible in Western Canadian Select heavy oil discounts, Canadian light crude benchmarks like mixed sweet and synthetic crude are also seeing differentials to U.S. crudes rise, reflecting increasingly tight take-away capacity across all crude grades,” the report noted.

BP PLC’s Whiting refinery in Indiana and Marathon Petroleum Corp.’s Detroit refinery, two of heavy Canadian oil’s key customers, have been off-line and undergoing maintenance.

Scotiabank expects differentials to return to the normal US$18-$22 as those two refineries wrap up their maintenance programs next month, and oil-by-rail traffic picks up the slack over the remainder of 2018.

Canadian oil-by-rail shipments, which reached an alltime high of 204,000 bpd in June, have further room to climb with current commitments from major carriers like Canadian Pacific and Canadian National, according to Scotiabank’s Johnston.

“We could very easily push about 400,000 barrels per day (moving on railway cars) by the end of next year,” Johnston said in an interview.