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Collapsing demand and brimming storage in the United States, Canada’s almost exclusive oil outlet, have resulted in a very usual situation in the Canadian oil industry. Prices for delivery at Cushing, Oklahoma, are so low that Canada’s producers don’t have incentive anymore to send their oil south of the border.
According to estimates of NE2 Group, cited by Bloomberg, the price of Western Canadian Select for May delivery was US$0.50 higher than the WTI Crude for May delivery at Cushing on Tuesday, the day on which the WTI May contract expired, having plunged to as low as –US$37 a barrel on the previous day for a historic crash of more than 300 percent. While most of the losses in WTI on Monday were attributed to the nature of the paper futures market and traders rushed the exit to avoid owning physical barrels of oil for delivery in May, the crash was indicative of the shrinking storage capacity at Cushing.
Storage in Canada is also an issue and has been such for several years as oil sands production rose while not a single new pipeline has managed to clear all the hurdles necessary to go into operation.
The collapse in oil demand, especially in Canada’s key oil market, the United States, now adds another layer of uncertainty for oil sands producers, on top of the fact that WTI Crude prices—which Western Canadian Select typically tracks—have plunged.
Canadian producers have already started shutting down steam-driven oil sands production projects, Reuters reports, noting the move could have dire long-term consequences for the production facilities. Husky Energy cut its oil sands output by 15,000 bpd. Cenovus reduced its production by 45,000 bpd and said it could raise this further to 100,000 bpd, nothing a cut of this size wouldn’t damage the bitumen reservoirs. ConocoPhillips last week said it would cut its oil sands output by as much as 100,000 bpd.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.