Canada’s benchmark heavy oil price has recovered since the oil-rich Alberta province mandated in December an oil production cut of more than 300,000 bpd, with the discount of Canadian oil to the U.S. benchmark WTI narrowing to its lowest in a decade.
Last Friday, the discount of Western Canadian Select (WCS)—the benchmark price of oil from Canada’s oil sands—to WTI narrowed to just US$7 a barrel, the smallest discount since March 2009, according to data from RBC Capital Markets quoted by The Wall Street Journal—a sign that the oil production curtailment has started to work in lifting the price of Canadian oil.
As Canadian oil production was growing last year, takeaway capacity constraints and maintenance at U.S. refineries in the fall of 2018 drove down the price of WCS to as low as US$14 a barrel in October and November, with its discount to WTI at around US$50 a barrel.
In early December, the Alberta government moved in to shore up the price of Canadian heavy oil and in the most drastic measure yet, the province of Alberta mandated an oil production cut of 325,000 bpd for three months starting January 2019. The glut and the resulting low oil prices cost Canadians US$60 million (C$80 million) a day, Premier Rachel Notley said in early December.
Early last week—and a week into Alberta’s oil cuts—Canadian crude oil hit the highest price level in more than a year on growth in crude-by-rail shipments. As a result of the increase in oil-by-rail shipments, Western Canadian Select traded at a discount of only US$10.50 to WTI on January 7.
“The forced cuts caught us all by surprise. Most people, including myself, saw no hope for Canadian differentials for another year or so,” Scott Shelton, a broker at ICAP PLC, told the Journal on Thursday.
By Tsvetana Paraskova for Oilprice.com
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