More supply, reliance on U.S. to trim price of oilsands crude

Canada is sending a record amount of oil to the U.S., filling pipelines to capacity and threatening to push more crude into rail cars.

U.S. imports from Canada jumped 17 per cent to 3.46 million barrels a day last week, the U.S. Energy Information Administration said Wednesday. That’s the most since the agency began collecting such data in 2010. Exports have surged as Alberta recovers from wildfires that disrupted supplies earlier this year.

Supplies from the oilsands are piling up as producers bring back output and projects that had been delayed by the fires come online.

The glut highlights Canada’s dependence on the U.S. market after TransCanada Corp.’s sevenyear struggle to get approval for the Keystone XL link to the Gulf of Mexico failed while Enbridge Inc.’s proposed Energy East line to the Atlantic Coast faces mounting opposition. The stress on existing lines means more crude will be hauled by rail at higher costs and the discount on Canadian crude will likely widen.

“As volumes continue to build, so will the pressure on the constrained pipelines system,” Kevin Birn, a director at IHS Energy in Calgary, said by email. “At some point in the coming months those volumes could very well overtake available capacity and increased movements of rail should be expected.”

Enbridge Inc.’s main line system has been running above its 2.4 million-barrel-a-day capacity and was full in August, according to Genscape Inc. analyst Ryan Saxton. Other lines including Spectra Energy’s Express and TransCanada’s Keystone were about 89 per cent full last month.

Western Canadian Select heavy crude is trading at a discount of $14.35 a barrel to West Texas Intermediate. WTI for November delivery advanced 98 cents to settle at $46.32 a barrel on the New York Mercantile Exchange on Thursday.

The discount on Canadian crude could expand to a one-year high of $16 a barrel by year end as a bigger price spread will be needed to encourage the use of rail, a more expensive method of shipment, said Eric Peterson, research chief at Denver-based ARB Midstream LLC, an oil transport investor.

Canadian crude-by-rail exports rose to a six-month high of 109,000 barrels a day in April before declining after wildfires took about 1 million barrels a day of production off the market, National Energy Board data show.

While Canada’s conventional oil production is declining, oilsands output continues to grow as projects initiated before the 2014 oil rout are completed.