Oil sands crude prices weaken further, widening the discount to benchmark WTI to $36
Prices for heavy oil sands crude weakened on Friday as rising production outpaced pipeline capacity and maintenance at big refineries threatened to sap demand.
The discount on heavy Western Canada select crude, a blend of conventional heavy oil and bitumen from the oil sands, widened to US$36 below the North American benchmark oil price, according to Net Energy in Calgary. That implies a value of roughly US$33.65 for the extra-thick oil.
Suncor Energy Inc. is boosting output at its Fort Hills mine at the same time it restores capacity at its majority-owned Syncrude Canada bitumen mining and upgrading complex. Fort Hills, located north of Fort McMurray, Alta., is due to add 194,000 barrels a day of new production by the end of the year, swamping a market already grappling with severe export constraints. Producers also face sustained pressures as U.S. refineries that consume a large share of oil sands crude are set to taper purchases. Five of the top 10 U.S. refiners of Canadian crude have planned maintenance scheduled over the next six months, according to Royal Bank of Canada.
They include big consumers of heavy Canadian barrels, such as
BP PLC’s plant in Whiting, Ind., Exxon Mobil Corp.’s Joliet, Ill., facility and Marathon Petroleum Corp.’s refinery in Detroit.
Delays to multibillion-dollar pipeline proposals have added to concerns in the Canadian industry. A federal court last month overturned approvals of the Trans Mountain pipeline expansion, the latest in a string of such setbacks for the industry. It could set startup for the expansion back by two years, to 2023, according to Toronto-Dominion Bank deputy chief economist Derek Burleton.
More crude is being delivered by trains, a top executive with Canadian National Railway Co. said this week. Total Canadian crude-by-rail exports surpassed 200,000 b/d in June, according to the latest data from the National Energy Board.
Ghislain Houle, finance chief of Montreal-based CN, said its crude-by-rail business is up by 50 per cent in the quarter todate and is on pace to reach 70,000 carloads for the full year. CN moved about 60,000 tank cars in 2017, down from a 2014 peak of 120,000. Enbridge Inc.’s Line 3 oil pipeline expansion to the U.S. Midwest is expected to start up by 2020, offering some relief to producers. However, forecasters are still calling for a period of sustained pricing pressure.
Delays to multibillion-dollar pipeline proposals have added to concerns in the Canadian industry.