Page 5 - NorthAmOil Week 23 2022

NorthAmOil COMMENTARY NorthAmOil

The US is releasing
180mn barrels from the
SPR in total.

WCS discount to widen. These include higher around 4.3mn bpd to the US. Further supply
natural gas prices, which increase the cost of with limited outlets for it could cause bottle-
refining heavy crude, and elevated demand for necks to re-emerge that may not ease until the
lighter products such as gasoline. Trans Mountain pipeline expansion to Can-
As a result of these factors, the discount on ada’s West Coast comes online. That project is
July WCS for delivery at the Hardisty oil hub delayed, though, and earlier this year its revised
reached more than $20 per barrel below WTI start date was pushed back again, from October
last week, representing the widest differential 2022 to July 2023. While the pipeline is moving
since early 2020. towards completion, further delays cannot be
ruled out.
What next? “However, a massive blowout in differentials,
WTI continues to trade at around $120 per bar- like we saw in 2018, is unlikely since produc-
rel, so even with a discount, WCS producers are ers are likely to be prepared for such a scenario
benefiting from higher prices than they have and quickly ramp up crude-by-rail volumes in
seen in some time. But competition in the mar- anticipation of such an event,” an RBN Energy
ket is also intensifying. analyst, Robert Auers, was quoted by Reuters as Once the Trans
CBC News noted this week that during the saying this week.
early waves of the coronavirus (COVID-19) Use of crude-by-rail was also recently touted Mountain
pandemic, production of many other heavy by Alberta Premier Jason Kenney as one way expansion comes
blends had slowed, helping to ensure buyers Canada can boost oil production in an effort
for WCS. Now, though, heavy output elsewhere to help replace Russian crude volumes that are online, Canadian
is bouncing back as producers seek to benefit being shunned on international markets owing
from high prices. And buyers are able to be more to the war in Ukraine. However, given that the heavy crude
selective about which grades of crude to buy and US is by far Canada’s largest market, this may
what to pay for it. not currently be necessary. Canadian oil can producers will
With the SPR continuing to release crude be re-exported from the Gulf Coast – and it also gain access
onto the market, the glut of heavy crude on has been, at record levels – but the main region
the Gulf Coast appears set to continue. If seeking to replace Russian crude is Europe, to Asian markets.
Canadian producers want to keep exporting which will find it easier to source supply from
crude to the region, they will likely have to elsewhere.
offer even larger discounts than those being Once the Trans Mountain expansion
seen currently. comes online, Canadian heavy crude pro-
Complicating this further are projections ducers will also gain access to Asian markets.
from the US Energy Information Administra- For now, though, they will continue to com-
tion (EIA) that Canadian crude production pete in the crowded Gulf Coast market, with
will rise by 200,000 bpd by the end of the year. a further risk of additional discounts materi-
EIA data show that Canada currently exports alising for WCS.™

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