While global headlines have trumpeted oil trading at a high value for much of this year, the reality in Canada has not been as positive recently.
West Texas Intermediate (WTI), the North American pricing benchmark, was valued at around $100 per barrel on Tuesday. Canadian crude, or Western Canadian Select (WCS), is typically priced at a discount of around $12 US per barrel, but lately, it’s ranged around $20 or $25, said Enverus head of macro research Al Salazar.
“While the sexy headlines are saying ‘triple-digit oil, way to go,’ Canadian producers are subject to WCS pricing,” said Salazar.
Global oil prices have surged this year after the war between Iran and the U.S. began, and WTI’s price has largely traded in the triple digits.
WTI is sold at a higher price largely due to being easier to refine and good for making gasoline, compared to the heavier, sour blend WCS.
The gap between the two products remained relatively stable in recent years. But Salazar said the gap has widened in the last couple of months, as rates for shipping oil via tankers has risen, and more Venezuelan oil has gone towards the U.S.
“Now, not only is Canadian crude having to pay more for shipping to be exported to offshore markets, it’s also having to compete for refining capacity in the Gulf Coast,” said Salazar.
In August, U.S. President Donald Trump celebrated a deal giving the country a stake in Venezuela’s oil reserves. The deal, and increased Venezuelan product directed toward U.S. refineries, followed American forces capturing then-president Nicolás Maduro in a January raid.
Richard Masson, former CEO of the Alberta Petroleum Marketing Commission, noted Canadian producers get better prices when they have more options of where to send their product, and more capacity to ship it.
Richard Masson, former CEO of the Alberta Petroleum Marketing Commission, argued long-term solutions are needed to address the differential between Canadian crude and WTI. (Justin Pennell/CBC)
But Masson noted currently Canadian pipelines are largely at-capacity, and U.S. demand has dropped with some refineries offline for maintenance and competition from Venezuelan oil.
“As we are growing our production pretty much continuously in the oilsands, if we don’t have enough market access, new pipelines or other things, then we end up in a problem because the pipes can’t keep up with the growth in production,” said Masson.
“That’s probably what’s going to happen over the course of this winter, at least.”
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He noted the industry will always be challenged by needing years to build new projects. But with less short-term fixes available to the industry, he said it needs to work on long-term solutions.
Masson pointed to expansion projects by Enbridge and the Trans Mountain pipeline, which could help grow capacity within the next few years.
“So there are some things that are in the works, but all of them will take time,” said Masson.
He noted the proposed Pacific Link pipeline to the West Coast would also benefit oil producers by giving them more ability to direct their product to Asian markets. But the earliest that would come online is 2032.
Currently, while the differential with WTI remains wide, Canadian crude is getting a premium in Asian markets.
Global conflicts are making Middle East and Russian producers less reliable, more Venezuelan oil is directed toward the U.S., all while tanker rates soar, Masson said — which makes Canadian crude a more positive option in Asia.
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“The Trans Mountain expansion is able to deliver diluted bitumen on tankers to Asia without any of those issues,” said Masson.
But he noted the amount the Canadian industry can ship to Asia currently isn’t enough to make up for the chunk of the American market it has lost.
Charles St-Arnaud, chief economist for Servus Credit Union, said that while the Trans Mountain expansion prevented the differential from widening as much in recent years, prior to that, Canadian producers often saw the WCS and WTI gap widen in the fall.
Without a short-term fix to narrow the gap, St-Arnaud said it could lead to a reduced surplus for Alberta’s economy by several billion dollars. He still expects very positive royalties in Alberta, but reduced from what they could otherwise reach.
He added that consumers are unlikely to see the differential affect their prices at the pump.
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“It’s really reduced the value of oil exports. We’re getting less money per barrel than we would hope to have, and that can be quite important,” said St-Arnaud.
“It’s more we’re getting less money per barrel, but the price per barrel is still very attractive compared to where we’ve been in recent years. It’s still positive; it’s just not as positive as we hoped it would be.”
