High oil inventories in Alberta point to further price drops
Oil inventories at key Alberta storage hubs of Edmonton and Hardisty breached 10 million barrels in each location last week, according to data from global energy consultancy Genscape, suggesting Canadian oil prices may trend even lower in the near future.
Oil markets are also keeping an eye on Cushing, Okla., North America’s largest oil storage complex, which could reach maximum capacity as early as next month.
“If and when that happens, there will definitely be downward pressure to WTI prices in and basically the entire crude complex,” said Hillary Stevenson, analyst at Genscape. “So that could ride in the contango curve even more, giving more incentive to store barrels elsewhere since Cushing will be full.”
Contango is an industry term that means traders expect prices will rise in the future.
Storage levels in Edmonton stood at 10.78 million barrels, 64 per cent of capacity, as of March 24, 13.6 per cent higher than the previous week, and the highest level since Genscape began tracking inventories in 2010.
“At Edmonton, the highest recorded utilization rate of 67 per cent could be surpassed within a week,” Genscape said in a report.
Hardisty also saw a 17 per cent jump in inventories last week, as Husky Energy Inc.’s 60,000 barrel per day Sunrise project and Imperial Oil Ltd.’s 40,000-bpd Cold Lake Nabiye came on line this month.
Close to eight million barrels of storage capacity is under construction, Genscape data shows, but with Hardisty only 50 per cent full, there is not a huge rush to build new tank farms. Kinder Morgan recently added 5.32 million barrels of storage space as part of its Edmonton terminal expansion project.
Oil inventory levels in Alberta may also be rising in anticipation of feeding Enbridge Inc.’s Hardistyto-Edmonton 527,000-bpd pipe- line expansion set to come online in April.
“Although the new line will improve flows from Edmonton to Hardisty, it will not improve outflow capacity from Hardisty to the United States,” Genscape said.
Like TransCanada Corp., which is waiting to hear from the U.S. State Department about its Keystone XL pipeline, Enbridge is also facing permitting delays for its Line 67 Clipper expansion from Hardisty to Superior, Wis.
Canadian heavy oil benchmark Western Canadian Select has traded below US$40 per barrel for much of the year, falling below $30 US on March 17, as production continues to expand and transportation capacity remains limited.
The National Energy Board expects a million barrels per day of additional crude oil to come on stream during the next three years, despite the dramatic drop in prices and stalling of oilsands project with a combined production capacity of 527,000-bpd.