The price of oil from Western Canada is once more significantly below the price of the world’s oil, and some experts predict that the price will not rebound until later in 2023.
Although a barrel of higher-quality, light sweet product normally costs more than a barrel of heavy Alberta oilsands crude, this difference has widened significantly in October.
As of Friday, the difference between the price of Western Canada Select (WCS) and New York-traded West Texas Intermediate (WTI) was approximately US$25 per barrel. (A Scotiabank research noted that a disparity of approximately $15 per barrel is more usual.)
The biggest price disparity Canadian oil producers have had to deal with since 2018 when a shortage of pipeline capacity out of Canada caused a surplus of inventory and hurt the profitability of the sector. In mid-October, WCS was selling for about US$32 per barrel less than WTI. The situation at the time was so critical that the Alberta government implemented a strategy of curtailment to lower the price discount and lower production levels in the province.
“In 2018, it was incredibly easy. The lack of pipelines was a major political issue, according to Rory Johnston, an energy analyst and the publisher of the Commodity Context newsletter.
This time, the precise cause of it is considerably less evident.
The variables affecting heavy crude, according to Johnston’s addition in 2022, are primarily related to a string of unanticipated refinery disruptions in the United States.
Midwest, which have restricted the amount of extra barrels that functioning refineries can accept.
As well, the U. S. government’s decision to release more oil from its Strategic Petroleum Reserve added to the downward price pressure, as did concerns earlier this month that a too-dry Mississippi River might make it difficult for refiners to ship product by barge.
As more refinery capacity comes online, Scotiabank analyst Jason Bouvier predicted that heavy oil prices will continue to decline over the winter before stabilizing in the second half of 2019.
The Trans Mountain pipeline expansion project is also expected to be up and running in late 2023, which should result in significant excess pipeline capacity and help the WCS differential to normalize, Bouvier said in a report.
The businesses most vulnerable to high oil prices, according to Bouvier, are MEG Energy Corp., Imperial Oil Ltd., and Cenovus Energy Inc.
But should the share prices of these businesses significantly decline, Bouvier added, “it will probably be an excellent entry point into names that should give exposure to robust medium and longer-term pricing.”
In October, the price differential for Canadian oil worsened; experts predict weakening until 2023.
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