• 4 minutes Is $60/Bbl WTI still considered a break even for Shale Oil
  • 7 minutes Oil Price Editorial: Beware Of Saudi Oil Tanker Sabotage Stories
  • 11 minutes Mueller Report Brings Into Focus Obama's Attempted Coup Against Trump
  • 15 minutes Wonders of Shale- Gas,bringing investments and jobs to the US
  • 10 hours Apartheid Is Still There: Post-apartheid South Africa Is World’s Most Unequal Country
  • 13 hours Evil Awakens: Fascist Symbols And Rhetoric On Rise In Italian EU Vote
  • 2 hours Visualizing How Much Oil Is In An Electric Vehicle (Hint: a heckuva lot)
  • 2 hours Theresa May to Step Down
  • 13 hours Total nonsense in climate debate
  • 14 hours IRAN makes threats, rattles sabre . . . . U.S. makes threats, rattles sabre . . . . IRAQ steps up and plays the mediator. THIS ALLOWS BOTH SIDES TO "SAVE FACE". Then serious negotiations start.
  • 3 hours Look at the LONGER TERM bigger picture of international oil & gas. Ignore temporary hiccups.
  • 16 hours Will Canada drop Liberals, vote in Conservatives?
  • 1 day IMO 2020 could create fierce competition for scarce water resources
  • 17 hours Trump needs to educate US companies and citizens on Chinese Communist Party and People's Liberation Army. This is real ECONOMIC WARFARE. To understand Chinese warfare read General Sun Tzu's "Art of War" . . . written 500 B.C.
  • 17 hours Canada's Uncivil Oil War : 78% of Voters Cite *Energy* as the Top Issue
  • 9 hours Australian Voters Reject 'Climate Change' Politicians
  • 13 hours Apple Boycott in China
Alt Text

The Silver Lining Of An Oil Price Crash

It has been a dismal…

Alt Text

The 2 Energy Giants Reshaping The Middle East

Typical crude oil producers such…

Alt Text

The Overlooked Factor That Could Send Oil To $50

Oil markets have enjoyed a…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Trending Discussions

Why Is Canadian Crude Selling For $20?

Oil prices in Canada plunged late last month, with the losses continuing throughout much of October. Canadian oil producers exposed to the low prices are now fetching around $40 to 50 per barrel less than their counterparts in the United States.

Western Canada Select (WCS), which tracks heavy oil from Canada, typically trades at a discount relative to WTI. The lower price reflects quality issues, as well as the cost of transport from Alberta to refineries in the U.S.

In early 2018, the discount started to grow significantly, the result of Canadian pipelines filled to the brim. The inability of the Canadian oil industry to build a major pipeline from Alberta to either the U.S. or the Pacific Ocean is increasingly dragging down WCS. Keystone XL, Northern Gateway, Energy East, Trans Mountain Expansion – all of these pipeline projects have run into years of delays, and in the case of Northern Gateway and Energy East, scrapped all together.

That left WCS prices languishing at discounts in excess of $30 per barrel at times this year. But the problem blew up into a deeper crisis in late September. Maxed out pipelines are still a problem, but now refineries in the U.S. Midwest are in maintenance season, curtailing demand for Canadian oil. BP’s massive Whiting refinery in Indiana, Phillips’ Wood River and Marathon’s refinery in Detroit all undertook maintenance, according to CBC. WCS plunged to the low $20s per barrel, implying a discount of about $50 per barrel to WTI. The recent decline of WTI below $70 per barrel has somewhat narrowed the differential to the mid-$40s per barrel.

The discounts mean that the oil industry in Alberta is losing around $100 million per day, according to GMP FirstEnergy and CBC.

Wood Mackenzie told CBC that the refineries should come back online “within the next few weeks.” Related: Oil Prices Tank Amid Global Stock Market Rout

Producers are turning to rail to ship their product to the U.S., a much more expensive route. Oil-by-rail shipments from Canada to the U.S. hit an all-time high of 204,000 bpd in June, according to Rory Johnston of Scotiabank. By the end of the year, rail shipments could reach 300,000 bpd. “Given the multitude of challenges currently faced by Canadian energy infrastructure projects, many in the industry increasingly see oil-by-rail less as a temporary Band-Aid and more as a permanent, flexible component of the supply chain to a Canadian energy sector seemingly unable to push a major pipeline project to the finish line,” Johnston wrote in a note.

Echoing that sentiment, the International Energy Agency said in its latest report that Canadian oil producers are beginning to lock in long-term contracts with rail companies, a practice that oil producers once tried to avoid. Because the industry expects some additional midstream capacity in the medium-term, inking rigid contracts with rail companies for many years into the future was not the most desirable route. Meanwhile, from the perspective of the rail industry, adding capacity to handle oil was also a risk since oil producers only want rail space for the year or two. Related: Find 150+ Crude Oil Prices Here

However, the ongoing setbacks for pipeline projects, in particular the severe blow to the Trans Mountain Expansion, might have changed some minds on both sides. “Rail companies are locking in customers with multiyear contracts, as the decision by a Canadian court to overturn the approval of the Trans Mountain pipeline project is firming up demand,” the IEA said in its October Oil Market Report. “Cenovus Energy, for instance, announced a three-year deal with Canada's CP Rail and CN Rail to transport 100 kb/d of crude from its oil sands facilities in Northern Alberta to the US Gulf Coast.”

Cenovus says that shipping oil to the U.S. Gulf Coast costs around US$20 per barrel.

Scotiabank estimates that WCS will average a $24-per-barrel discount to WTI throughout 2019. Once Enbridge’s Line 3 replacement comes online in 2020, that could add several hundred thousand barrels per day of takeaway capacity, which could narrow the WCS discount to $21 per barrel.

Still, that leaves an uncomfortably long time for oil producers, who will have to struggle with painfully large discounts for WCS over the next year or so.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment
  • Dan on October 23 2018 said:
    So technically all the oil companies in Canada are bankrupt and only pumping oil to help lower the price of oil to the point governments believe will not hurt the going gangbusters economic growth of each country? Someone afraid yet? Hyperinflation on the plate for most Western countries?
  • John Brown on October 23 2018 said:
    Trudeau didn’t keep it a secret he belonged to the cult of global warming & would do everything he could to destroy the Canadian Energy Industry. Canada elected him. He’s keeping his promises.
  • sal toma on October 24 2018 said:
    I guess all Canadians can thank their Prime Minister Justine Trudope for the mess
    their energy industry is in. I hear they can't build anymore pipelines or energy projects unless the Indians allow it.
  • Chris on October 24 2018 said:
    To be clear: Trudeau's gov tried to pass the Trans Mountain, even bought it to remove the risks to the oil companies but the Supreme Court found that the Gov had not paid enough attention to First Nations (aka (sic) Indians)

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News