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The price oil sands producers received fell back to nearly $33 a barrel below US benchmark crude this week, dropping to lows last seen in January.
The deepening discount paid for Western Canada Select – a blend of heavy oil sands crude and conventional oil – comes on top of a slide in West Texas Intermediate (WTI).
WTI dropped to below $97 a barrel on the New York Mercantile Exchange before recovering slightly, down almost 4% during the week to levels last seen in June after an unexpected rise in US oil inventories and supply.
According to a US Energy Department report issued Wednesday oil stocks climbed by 5.2 million barrels over the past week against expectations of only around 3 million barrels. The surprising jump in inventories came after 4 million barrel increase in crude supplies for the week ending October 11.
Global benchmark prices in the form of North Sea Brent also come under pressure trading below $107 on Friday on the possibility of Iranian crude once again hitting the market as first signs of a thaw in relations between the Middle-Eastern country and the US emerge after decades of opposition.
Iran’s exports which are still being bought by China, India, Japan, South Korea and Turkey, have halved since the toughest round of sanction yet were imposed last year. Should Iran’s crude be opened up to the West more than a million barrels per day could re-enter the market.
Today’s effective price for for bitumen-derived oil from Alberta’s oil sands of $67.60 a barrel is the lowest since April this year with the discount more than doubling since early July.
The value of Syncrude, a light oil made from oil sands after undergoing an expensive upgrading process, now also trades at a $10 discount to WTI compared to a steady premium for most of this year on a surge in production in Canada.
Comments
ABCanuck
For ExxonMobil and other US multi-nationals exporting raw bitumen to their Gulf Coast refineries, a large differential between WCS and WTI increases profits and makes WCS more competitive against foreign heavy, sour crudes owned by national oil companies.
However, Canadian producers without upgraders and refineries lose profits with a large WCS discount.
For Albertans, a reduction in WTI price reduces bitumen royalties because they are directly tied to the price of WTI.
For Canadians, the economic loss in foregone added-value from domestic upgrading, refining and petro-chemicals as a result of the export of raw bitumen increases as the WCS discount increases -assuming Brent prices are relatively stable.