Canada’s oil producers can’t catch a break.
Even as local production cuts help alleviate pipeline bottlenecks, heavy crude plunged below US$18 a barrel for the first time since 2016 — dragged down by global oil prices.
Oilsands producers including Canadian Natural Resource Ltd., Devon Energy Corp., Cenovus Energy Inc. and Athabasca Oil Corp. have announced curtailments that may total 140,000 barrels a day or more, after a localized glut sent heavy Western Canadian Select crude plunging to a US$50 discount to West Texas Intermediate futures, the widest in Bloomberg data going back a decade.
Since then, WCS’s discount has narrowed to about US$42 a barrel, but the absolute price has plunged along with world crude benchmarks amid concerns of oversupply. The U.S. has granted eight nations waivers to continue buying Iranian oil, while OPEC and Russia have boosted production. WTI futures dropped for a tenth straight day on Friday, falling briefly below US$60 a barrel.
Adding to the Canadian oil woes, two pipeline projects that would eventually help producers get their crude to markets are facing court delays. On Friday, a U.S. court ruled that an environmental assessment of TransCanada Corp.’s Keystone XL pipeline was inadequate, a decision that could delay the $8 billion project by eight months. Earlier this year, a Canadian court ruled that the planned expansion of the Trans Mountain pipeline to the Pacific would need to undergo further regulatory reviews.
Canada’s crude export pipelines are rationing space after a surge of new production from the oil sands came online late last year and early this year. Recent refinery maintenance in the U.S. Midwest has also reduced demand for Canada’s oil. Currently, just one export pipeline project, Enbridge Inc.’s Line 3 expansion, is under construction and scheduled to begin operating by the second half of next year.
Oil prices were little changed on Monday near US$60 a barrel after Saudi Arabia pledged to curb output and urged allied crude producers to follow suit. Western Canada Select’s discount to West Texas Intermediate narrowed 35 US cents to US$42.15 a barrel as BP Plc’s Whiting refinery in Indiana, a major user of Canadian crude, began starting up its biggest crude unit after maintenance.
Oil companies may be curtailing production now in anticipation that they will get better prices later when access to rail cars or pipelines improves, Birn said.
“There is a financial upside to their strategy,” he said.