Canadian heavy oil trading at ‘outrageous’ $40 discount
CALGARY Canadian oil producers are missing out on a recent rally in global oil pr ices as the discount for domestic crude flirts with all-time highs in r ecent weeks.
“It has been ridiculous — it’s been outrageous, actually,” said Mar tin King, director of institutional research at GMP First energy, about the near -record 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-by rail shipments and, r ecently, pr oduction outages at two impor tant U.S. refineries.
While the West Texas Inter mediate benchmar k has steadily climbed over US$71.89 per bar r el — dr awing the ir e of U.S. Pr esident Donald Tr ump, who blamed OPEC for high pr ices — the main Canadian oil benchmar k has at times tr aded for less than half that pr ice.
King said Wester n Canada Select, a blend of heavy oil bar r els, was trading at a discount of US$34.50 per barrel at mid-day on Wednesday, or roughly half of WTI prices. Some WCS contr acts have tr aded at aUS$40-per barrel discount to WTI but King says those wer e small tr ades of high-sour , heavy barrels, which traditionally trade at a discount to the lighter WTI oil benchmark. “It may be not quite ar ecor d, but it’s pr etty damn close,” he said, r efer r ing to the all-time high set on Nov. 5, 2013, when WCS tr aded at a US$42-per -bar r el discount.
Ror y Johnston, commodity analyst at Scotiabank, said in ar epor t Wednesday that br oker s in Calgar y ar e talking about Canadian heavy oil futur es tr ading hands at all-time high discounts of mor e than US$40 per bar r el under WTI in late September .
“While pipeline bottlenecks ar e most visible in Wester n Canadian Select heavy oil discounts, Canadian light cr ude benchmar ks like mixed sweet and synthetic cr ude ar e also seeing differentials to U.S. cr udes r ise ...,” the r epor t noted.
BP Plc’s Whiting refinery in Indiana and Mar athon Petr oleum Cor p.’s Detroit refinery, two of heavy Canadian oil’s key clients, have been offline.
Scotiabank expects differentials to return to the nor mal US$18-$22 as those two refiner ies wr ap up their maintenance pr ogr ams next month, and oil-by-r ail tr affic picks up the slack over the remainder of 2018.