Oil-sands supply glut floods pipes to US

American imports from northern neighbour jump 17% to 3.46m barrels a day

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

US imports from its northern neighbour jumped 17 per cent to 3.46 million barrels a day last week, the US Energy Information Administration said Wednesday in a preliminary report. 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 oil sands 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 US market after TransCanada Corp’s seven-year struggle to get approval for the Keystone XL link to the Gulf of Mexico failed while its proposed Energy East line to the Atlantic Coast faces mounting opposition in Canada. 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 Wednesday. “At some point in the coming months those volumes could very well overtake available capacity and increased movements of rail should be expected.”

Capacity

Enbridge Inc.’s mainline system, the most important conduit for shipping Canadian crude into the US, 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 $14.30 a barrel to West Texas Intermediate, according to data compiled by Bloomberg.

WTI for November delivery advanced 98 cents to settle at $46.32 a barrel on the New York Mercantile Exchange on Thursday. The US benchmark is down almost 60 per cent from its 2014 peak.

The discount on Canadian crude could expand to a oneyear high of $16 a barrel by year end as a bigger price spread will be needed to encourage the use of rail.