The Globe and Mail (Ottawa/Quebec Edition) - - REPORT ON BUSINESS - MATT LUNDY

Heavy oil benchmark swings dra­mat­i­cally higher just weeks af­ter hit­ting an all-time low, bring­ing price dis­count closer to his­toric norms

Weeks af­ter hit­ting an all-time low, Canada’s heavy-oil benchmark is on a roll, surg­ing again on Fri­day and nar­row­ing its dis­count to U.S. crude.

West­ern Cana­dian Select was trad­ing for US$38.12 a bar­rel on Fri­day af­ter­noon, up 15.6 per cent from Thurs­day’s close, mark­ing the lat­est round of gains af­ter Al­berta Premier Rachel Notley an­nounced pro­duc­tion cuts, to take ef­fect in Jan­uary, aimed at lift­ing rock-bot­tom prices. Faced with a pipe­line bot­tle­neck and ris­ing in­ven­to­ries, Al­berta’s oil prices had plum­meted in re­cent months, with WCS hit­ting a record low of less than US$14 in Novem­ber.

This week’s rally has re­sulted in a sig­nif­i­cant nar­row­ing of the price dif­fer­en­tial be­tween WCS and West Texas In­ter­me­di­ate, the U.S. benchmark. WCS now sells for a US$15-a-bar­rel dis­count to WTI; in Oc­to­ber, the price gap had bal­looned to US$50, the largest dis­count in Bloomberg data go­ing back to 2008. A key met­ric in the oil patch, the dif­fer­en­tial is now slightly bet­ter than the his­tor­i­cal av­er­age of US$17.37.

Fri­day’s rally also puts WCS in the neigh­bor­hood of some lon­grange es­ti­mates. Joan Pinto, as­so­ciate and en­ergy spe­cial­ist at CIBC Cap­i­tal Mar­kets, is­sued a fore­cast this week that pegged WCS at an av­er­age price of US$40.50 a bar­rel in 2019 and US$41.75 the fol­low­ing year.

Global oil prices ral­lied on Fri­day af­ter “OPEC-plus” an­nounced a big­ger-than-ex­pected cut to crude pro­duc­tion. (“OPEC­plus” refers to the Or­ga­ni­za­tion of Petroleum Ex­port­ing Coun­tries, along with other pro­duc­ers that had agreed to a pre­vi­ous sup­ply cap, such as Rus­sia.) WTI jumped 4.5 per cent to US$53.83 a bar­rel, and Brent crude was up 5 per cent to $63.06, as of early Fri­day af­ter­noon.

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