Oil prices around the world have risen to their highest levels in years, but Canadian oilsands producers are seeing comparatively less for every barrel because of imbalances in supply and demand.
The benchmark North American oil price, a crude blend known as West Texas Intermediate or WTI, was changing hands for $119 US a barrel on Tuesday — within striking distance of the multi-year high of $120.99 US after Russian President Vladimir Putin’s invasion of Ukraine in February sent the market into turmoil.
WTI is what’s known as a “light, sweet” blend, so-named because it is less dense than “heavy” oils and has much less sulphur content than others that are considered to be “sour” ones. Those chemical qualities make it easier and cheaper to refine, store and ship, which is why WTI has become the prized benchmark for oil prices.
But countless other blends exist, including the type of oil that comes out of Alberta’s oilsands, a heavy and sour mix that’s known as Western Canada Select or WCS. Oilsands crude from Canada almost always trades at a discount to blends like WTI, because it must be diluted before being shipped, and many parts of the world won’t accept it as an import because of its high sulphur content.
It’s also generally cheaper because of the many transportation difficulties with getting it out of landlocked Alberta and into pipelines or railcars bound for refineries on the U.S. Gulf coast.
Typically that discount is about $10-$15 US a barrel, but recent events have pushed the gap to beyond $20. That’s the widest it’s been since November, and close to the $22-spread seen in the very early days of COVID-19 when the price of oil plunged.
That means that even as WTI flirts with $120 US a barrel, Canadian oilsands producers are still only getting $99 US for their product.
There are a few reasons why, but they all boil down to one basic rule of economics: supply and demand.
Different oil blends require refineries to be calibrated differently to process them, and many refiners aren’t set up to process heavy blends like WCS. During the pandemic, production of many heavy blends slowed to a crawl, which inadvertently helped ensure buyers for WCS.
“For a long time WCS really benefited from the lessened availability of Mexican heavy crude and Venezuelan crude,” said Rory Johnston, founder of oil market data service Commodity Context. “All the other heavy crudes in the region they traditionally competed against, they weren’t there anymore, so WCS was near the only game in town.”
A cup of heavy oil extracted from Canadian oilsands is shown. Canadian oilsands crude always trades at a discount to more prized U.S. blends, but that price gap has widened in recent weeks. (Reuters)
But that’s no longer the case. Production of a heavy Mexican blend known as Mayan crude is surging, as are medium-heavy blends from offshore platforms like Mars and Poseidon.
The result is that refiners who take those heavy blends have no shortage of supply, so they can afford to be choosier on what to pay for it and who to buy it from.
“You have more options, so you’re not taking as much as you’re used to,” is how energy analyst Fernando Valle with Bloomberg Intelligence describes the mindset of U.S. heavy crude refiners right now.
That demand slowdown is coming against the backdrop of an uptick in supply out of Alberta, too. May is typically a slower month for oil production in Canada’s oil patch because the changing weather results in what Valle calls a “melt-off.”
“It’s hard to move rigs because the ground thaws, so there’s typically a decline,” he said in an interview. It’s why many facilities shut down either voluntarily or involuntarily every spring, but early indications are that production is going to rebound strongly this summer. And all that excess Canadian oil is already starting to pile up.
Canadian oil inventories are already at their highest level since 2019, and they’re poised to increase this month, according to Bloomberg data. Against the backdrop of that excess supply and lower demand, a widening price gap for Canadian oil makes perfect sense.
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“Inventories in Hardisty, Alberta, are more full than the inventories in Cushing,” Valle said, referring to the oil hub of Cushing, Oklahoma, the central transport hub of the U.S. energy industry, home to about 15 per cent of all the oil storage in the U.S.
“That’s ultimately what that differential is telling you.”
Almost 40 million of barrels of crude is set to be released to the market starting July 1,the U.S. Department of Energy said last month, and the blend of crude being released is sour, which makes it similar to the type of oil the oilsands offers — and all of it will be released near the cluster of refineries on the U.S. Gulf Coast that Canadian producers also sell to.
Although it will happen slowly, at a pace of about 1 million barrels per day, the total planned release is more than 10 times what Canada’s oilsands produce on a typical day, so a market flooded with that much sour crude is likely to drive down the price of Canadian products even more.
“That Alberta stuff is still going to be shipped down there,” Johnston said. “They’re just going to have to discount it more to sell.”
EDMONTON – RCMP say a second suspect has been arrested in the killing of an Alberta county worker.
Mounties say 28-year-old Elijah Strawberry was taken into custody Friday at a house on O’Chiese First Nation.
Colin Hough, a worker with Rocky View County, was shot and killed while on the job on a rural road east of Calgary on Aug. 6.
Another man who worked for Fortis Alberta was shot and wounded, and RCMP said the suspects fled in a Rocky View County work truck.
Police later arrested Arthur Wayne Penner, 35, and charged him with first-degree murder and attempted murder, and a warrant was issued for Strawberry’s arrest.
RCMP also said there was a $10,000 reward for information leading to the arrest of Strawberry, describing him as armed and dangerous.
Chief Supt. Roberta McKale, told a news conference in Edmonton that officers had received tips and information over the last few weeks.
“I don’t know of many members that when were stopped, fuelling up our vehicles, we weren’t keeping an eye out, looking for him,” she said.
But officers had been investigating other cases when they found Strawberry.
“Our investigators were in O’Chiese First Nation at a residence on another matter and the major crimes unit was there working another file and ended up locating him hiding in the residence,” McKale said.
While an investigation is still underway, RCMP say they’re confident both suspects in the case are in police custody.
This report by The Canadian Press was first published Sept. 13, 2024.
RICHMOND, B.C. – The Integrated Homicide Investigation Team says the 26-year-old son of a man found dead on British Columbia’s Sunshine Coast has been charged with his murder.
Police say 58-year-old Henry Doyle was found badly injured on a forest service road in Egmont last September and died of his injuries.
The homicide team took over when the BC Coroners Service said the man’s death was suspicious.
It says in a statement that the BC Prosecution Service has approved one count of first-degree murder against the man’s son, Jackson Doyle.
Police say the accused will remain in custody until at least his next court appearance.
The homicide team says investigators remained committed to solving the case with the help of the community of Egmont, the RCMP on the Sunshine Coast and in Richmond, and the Vancouver Police Department.
This report by The Canadian Press was first published Sept. 13, 2024.
VANCOUVER – Mediated talks between the union representing HandyDART workers in Metro Vancouver and its employer, Transdev, have broken off without an agreement following 15 hours of talks.
Joe McCann, president of Amalgamated Transit Union Local 1724, says they stayed at the bargaining table with help from a mediator until 2 a.m. Friday and made “some progress.”
However, he says the union negotiators didn’t get an offer that they could recommend to the membership.
McCann says that in some ways they are close to an agreement, but in other areas they are “miles apart.”
About 600 employees of the door-to-door transit service for people who can’t navigate the conventional transit system have been on strike since last week, pausing service for all but essential medical trips.
McCann asks HandyDART users to be “patient,” since they are trying to get not only a fair contract for workers but also a better service for customers.
He says it’s unclear when the talks will resume, but he hopes next week at the latest.
The employer, Transdev, didn’t reply to an interview request before publication.
This report by The Canadian Press was first published Sept. 13, 2024.
