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Due to ongoing production cuts from Canadian oil producers and to increased storage capacity, the price of Canada’s heavy oil soared early this week to its smallest discount to the U.S. WTI Crude futures in at least 12 years, data from NE2 Group and Bloomberg showed.
The price of the June contract of Western Canadian Select (WCS), the benchmark price of oil from Canada’s oil sands delivered at Hardisty, Alberta, was just US$3.80 per barrel lower than the price of the WTI Crude June contract early on Tuesday, according to NE2 Group.
This discount of Canadian heavy oil to WTI Crude was the smallest gap in prices since at least 2008, according to Bloomberg data dating back to 2008.
The two key reasons for stronger WCS prices this week are the ongoing production cuts by many Canadian oil producers and an announcement by pipeline operator Enbridge that it was offering a portion of a pipeline for storage.
Canadian oil firms have been reducing spending and output at many heavy oil projects in Alberta, due to the unsustainably low oil prices and the demand crash in the COVID-19 pandemic.
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Husky Energy has cut its budget and production, Cenovus Energy slashed its 2020 capital spending by around 32 percent, Suncor cut capital guidance, and so did Canadian Natural Resources. Athabasca Oil Corporation also cut its capex and proactively curtailed heavy oil production at Hangingstone. ConocoPhillips is reducing production at Surmont.
Analysts expect that the companies will announce curtailments in production to the tune of around 1 million bpd in the coming months.
In another bullish development for Canadian oil prices, Enbridge said on Monday that it was offering 900,000 barrels of oil, for an eight-month term, to be stored in a portion of the Line 3 pipeline between Regina, Saskatchewan, and Cromer, Manitoba. The portion of the pipeline would serve as temporary, regulated storage before the pipeline is decommissioned next year, Enbridge said, noting that “This temporary storage, along with the further maintenance optimizations to our storage tank program, will create more than two million barrels of additional storage capacity for 2020.”
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.