In a fascinating twist of price trends, a barrel of Canadian heavy crude that is selling for less than US$20 a barrel in Alberta could sell for three times that on the Gulf coast, the Calgary Herald reports, citing an analyst from AltaCorp Capital.
“We’re not even talking about a different barrel,” Nickolas Lupick said. However, only a small portion of Canadian heavy crude reaches the Gulf coast. The companies that have the luck, or maybe privilege, to have pipeline and rail car capacity to ship their crude to the south are making out like bandits. MEG Energy corp. and Cenovus are probably among the lucky few who are selling some of their otherwise cheap crude at US$64.74 per barrel, while the competition is taking it on the chin. According to data from the EIA, the total is about 458,000 bpd.
A lot more, or some 2.64 million bpd of Canadian heavy crude, is sold at the low prices, data for the first seven months of the year reveals. This crude goes to refineries in the Midwest.
Access to transport seems to be the key. “If you can physically move it on some sort of take-or-pay arrangement, the price you’d be able to get is that price in the other market less the transportation cost to move it there,” IHS Markit’s VP for North American crude oil markets, Kevin Birn, told the Calgary Herald.
As of this morning, the discount of Western Canadian Select —the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta—to West Texas Intermediate stood at US$51.49 a barrel—the latest stage in a development that has hammered Canadian producers’ margins thanks to the pipeline capacity shortage combined with higher railway transportation costs.
While addressing the pipeline shortage problem has proven quite tricky, rail cars are available. Earlier this week, Alberta’s premier Rachel Notley asked the federal government to provide Albertan producers with more railway car capacity to help them fight the discount.
By Irina Slav for Oilprice.com
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