Page 4 - NorthAmOil Week 41 2022

NorthAmOil COMMENTARY NorthAmOil

Canadian oil prices see

widening discount

Western Canadian Select crude prices have fallen to their

widest discount to US benchmark prices since 2018, but

this is not being attributed to takeaway capacity shortages

NORTH AMERICA THE discount between Western Canadian Select required for processing Canadian heavy crude
(WCS) heavy crude and US benchmark prices is plays into the discount, and a shortage of takea-
WHAT: widening again. WCS typically trades at a dis- way capacity out of Alberta’s oil sands has been
WCS crude prices fell count to West Texas Intermediate (WTI), but in weighing on WCS prices for some time.
to their widest discount the middle of this month it increased to around Indeed, Alberta’s former New Democratic
compared with WTI since $34 per barrel – the widest gap between the two Party (NDP) government introduced limits on
2018 in mid-October. grades since 2018. the province’s oil production in 2019 in an effort
This has been attributed to imbalances to bolster crude prices and narrow the differen-
WHY: between supply and demand. Not all refineries tial between WCS and WTI. The discount at
Takeaway capacity are capable of processing WCS owing to its high that time was attributed in large part to the lack
shortages are not thought sulphur content, which makes it a sour blend. of new takeaway capacity out of Alberta, which
to be to blame this time, Currently, though, a number of the refineries was already constraining production growth in
with the discount instead that do process Canadian crude are currently the oil sands.
being attributed to offline. On top of this, fears of a looming reces- Since then, oil sands takeaway capacity
refining capacity. sion are putting downward pressure on oil has improved somewhat with the start-up of
demand. Enbridge’s Line 3 replacement in late 2021, with
WHAT NEXT: a further capacity boost coming when the Trans
Fears of a looming Refineries, not pipelines Mountain pipeline expansion enters service
recession are also Both refineries and pipelines are typically con- next year. And this time, the widening differen-
thought to be contributing sidered factors that contribute to the discount tial between WTI and WCS is not being attrib-
to reduced demand. between WTI and WCS. The additional cost uted to pipeline capacity issues.

Pipeline capacity
shortages are not to
blame for the current
differentials, unlike in
recent years.

P4 www. NEWSBASE .com Week 41 13•October•2022