Since the beginning of the year, Canadian heavy crude prices have been steadily improving relative to the West Texas Intermediate (WTI) light crude benchmark. Improved access across the US as far south as the Gulf Coast has contributed to these better conditions. At the same time, the traditional driver of rising refinery demand after the end of the most recent maintenance season is being helped by the restart of two Midwest refineries that have typically been consumers of Canadian heavy oil. With international competitive pressures easing and export buyers remaining active in the Gulf Coast, heavy oil prices could remain in a sweet spot for much of this year. In today’s RBN blog, we look at why international competition for Canadian heavy crude will only intensify next year as export access from Canada’s west coast becomes available.
Western Canadian heavy crude oil, and its prices, seem to be in a good place these days. Without infrastructure constraints, such as insufficient pipeline export capacity, Canadian heavy crude oil has flowed seamlessly to where it is most needed. The price discount applied to Western Canadian Select (WCS), the heavy oil price benchmark in western Canada, has been narrowing against major trading centers in the US oil trading complex such as Cushing, OK and the Gulf Coast, increasingly reflecting a price. difference that is based only on the quality and transportation costs of the pipes. Finally, Canadian heavy crude exports from the Gulf Coast appear to have recovered in recent months and may be contributing to the reduction in the price discount applied to WCS. What once seemed impossible, a Canadian crude whose price could be more closely linked to developments in the international oil market, may finally be here to stay.
In Part 1 In this series, we reviewed many of the strange events that have altered the price of Canadian heavy oil in recent years. The extraordinary blowout of the price spread between WCS in the Western Canadian trading hub of Hardisty, AB, and WTI near $50/bbl in late 2018 was the result of the increase in production against the insufficient export capacity of the gas pipeline. One solution, if you can call it that, involved the provincial government of Alberta (home to the vast majority of Canada’s heavy oil production) ordering production cuts to better align supplies with pipeline capacity , a move that quickly narrowed the huge price differential. closer to historical averages.
