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U.S. Shale Has A Glaring Problem

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WCS-WTI Spread Narrows As Exports-By-Rail Pick Up

oil storage

Volume constraints on the Keystone pipeline system levied by U.S. regulators have widened the spread between Western Canadian Select crude prices and benchmark American crude prices, but the steep discount is set to moderate, according to emerging reports.

Growing volumes from Alberta’s oil sands have had trouble getting to U.S. markets since federal regulators ordered TransCanada to curtail the line’s capacity by 20 percent after a spill in South Dakota in November. So while WTI climbed, oil prices from Alberta’s oil sands fell.

Crude oil by rail shipments are expected to pick up in Canada, which although costlier, allow the shipper greater flexibility in determining shipment locations that will fetch the best price for the oil.

Western Canada Select (WCS)—the benchmark that tracks heavy oil in Canada—has traded an average of 11 percent down in 2018, compared to Q4 2017.

Canada’s oil by rail exports, according to the National Energy Board’s latest report, shows an increase in October 2017 by about a third over October 2016.

Despite those higher exports by rail, Canada’s rig count fell from 210 to 136 at the end of 2017, a massive drop off that took the rig count to a six-month low. The losses were concentrated in Alberta, where most of the rigs tend to be, sinking the rig count to 118 from 162 in the last week of the year. Saskatchewan also saw its rig count decimated—falling from 43 in mid-December to just three at the close of the year.

The lost rigs can be attributed to the ‘winter break’ and to the wide WTI-WCS spread. The WCS-WTI discount became unusually large in November and December, but could be set to narrow by the end of January.

By Zainab Calcuttawala for Oilprice.com

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