Canadian crude dips to record low as pipeline space runs out

Volatility forecast to continue amid projects’ output hike, off-line refineries

Canadian crude fell to a record low relative to U.S. crude, hurt by lower capacity at American refineries and a hike in output from new oilsands megaprojects that has overwhelmed the pipeline system.

Maintenance work at U.S. refineries over the next six months will lead to stretches when those facilities are off-line, giving portions of Canadian heavy crude nowhere to go, Andrew Botterill, a partner at Deloitte in Calgary, said in a report Thursday. That dynamic, along with increased output from newly finished projects like Suncor Energy Inc.’s Fort Hills mine and improved efficiency at existing operations, is already at play, he said.

“We’re already starting to see it,” Botterill said. “The volatility that we’ve seen in the last three months, I totally expect to see more of it in the next three months. ... in 2019 as well.”

Western Canada Select’s discount to U.S. crude sank to US$43.25 a barrel on Thursday, the widest on record in Bloomberg data stretching back to 2008.

Canadian crude production recently surpassed available pipeline space, and even with the country ’s producers signing contracts to move more crude by train, Canada doesn’t have enough rail capacity to alleviate the transportation bottlenecks, Botterill said. The country will need more pipelines and more domestic refining capacity to clear the glut, and those could take years to develop, he said.

“I hate to imagine something even worse than what we’re seeing right now,” Botterill said. “But we’re going to see more days of these $40 differentials.”