Canadian heavy crude oil prices plunged to their biggest discount to futures since 2018 and, this time, the collapse has little to do with a shortage of pipelines.
Heavy Western Canadian Select’s discount to West Texas Intermediate widened US$1.50 to US$32.50 a barrel at Hardisty, Canada, on Wednesday, the widest since November 2018, data compiled by Bloomberg showed.
That was just before massive pipeline bottlenecks prompted provincial authorities in Alberta to impose production caps on local oil companies.
Photo: REUTERS
For years, Alberta’s oil sands producers blamed big discounts for Canadian heavy crude on the province’s lack of pipelines, forcing companies to sell at reduced prices locally.
However, a new export pipeline called Line 3, which started operation last year, has largely solved that problem.
Instead, the growing price discount is related to a broader set of issues that Canada has less control over, traders say.
Photo: AFP
Maintenance and emergency shutdowns of major US refineries, including BP refineries in Whiting, Indiana, and Toledo, Ohio, mean less Canadian crude oil can be processed in its biggest market.
At the same time, shipping disruptions on the Mississippi River are sparking fears refineries will have to curtail operations because the fuel they make cannot be shipped down the river.
With less demand in the US Midwest, more oil is shipped south toward the US’ Gulf of Mexico coast, where new problems emerge.
High natural gas prices make refining heavy and high-sulfur crude oil more expensive, Vortexa data showed.
At the same time, Canadian crude oil on the coast is exposed to discounted Russian barrels.
Meanwhile, India has since May cut its imports of Canadian oil by almost half, as the country takes more Russian crude oil.
Canadian Cold Lake crude oil on the Gulf Coast traded at a record discount of US$23 a barrel early on Wednesday, before strengthening in the afternoon to US$20.25 a barrel.
The discount reached US$25 a barrel at Cushing, Oklahoma, before rebounding to a US$21.75 a barrel, Link Data Services said.
Floating inventories of high-sulfur fuel oil off Singapore rose to a year-and-a-half high the week ended on Monday, as Russian residual fuel flowed to Asia, Vortexa said in report.
Asian residual fuel exports jumped to the highest in about two years last month.
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