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Canadian heavy oil prices rise from the dead

Canadian heavy oil prices rise from the dead

Crude oil prices have been all moving higher this spring, including heavy oil benchmark Western Canadian Select (WCS). Although Brent and West Texas Intermediate hit bottom in January, WCS hit a its 6 year low in mid-March, bottoming out at less than US$29 a barrel. Despite concerns of heavy oil prices falling through the floor, WCS actually made a spectacular recovery from the March lows, gaining almost 74% so far in the past 2 months. 

In comparison, West Texas Intermediate is up 15% since from mid-March and up only 25% from the lows of mid-January 2015. Since WCS is climbing faster than WTI, the heavy oil discount has narrowed to just over US$8 a barrel, down from an average of US$16 a barrel in January.

Before breaking out the champagne, investors are reminded that Western Canadian Select is well off its 2013 high of just over US$91. Although the April monthly average for WCS rebounded to US$43 a barrel, prices are still down over 50% from the highs of 2013, representing a significant drop in revenues for Canadian heavy oil producers. The decline is often slightly by a weaker Canadian dollar.

Historically, Western Canadian Select prices tend to be lower in the winter when US refineries are down for maintenance and generally peak during the summer driving season when refinery demand increases. It remains to be seen if energy prices can continue to gain momentum into the summer months.

western-canadian-select-historical-pricing.jpg

Canadian energy companies that are the most leveraged to WCS prices include Canadian Natural Resources (TSX:CNQ) and Cenovus (TSX:CVE).

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