As the biggest Canadian oil producers reported Q3 earnings in the past two weeks, analysts were more interested in the companies’ expectations about takeaway capacity rather than earnings, due to the record-wide price differential of Canada’s heavy oil to WTI.
Acknowledging that the record low prices of Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—is an anomaly on the market, many of the biggest oil producers in Canada expect some relief to come in the short term with U.S. refineries returning from maintenance this quarter and with crude-by-rail shipments to the U.S. continuing to set new records in the coming months.
Despite these short-term eases in capacity constraints, Canadian oil producers pin their hopes on at least one pipeline (Enbridge Line 3) out of Canada going into service at the latter half of 2019, to further alleviate bottlenecks and return the WCS prices to their normal discount to WTI.
With WCS selling for as low as US$20 in recent weeks, some of Canada’s producers curtailed heavy oil production in Q3 and some struck agreements with rail companies to transport their crude to the U.S. market. Operations and expectations at each of the companies vary, but their collective underlying message in Q3 earnings calls was that although some relief could be coming soon, high differentials may persist until pipelines come into service.…