Oil sands crude prices weaken fur­ther, widen­ing the dis­count to bench­mark WTI to $36

The Globe and Mail Metro (Ontario Edition) - - REPORT ON BUSINESS - JEFF LEWIS CAL­GARY With a file from re­porter Eric Atkins

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.

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