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Western Canadian Select hits 6 year low

Western Canadian Select hits 6 year low

Western Canadian Select (WCS) hit a fresh 6 1/2 year low on Friday, ending the day at $26 a barrel. The falling price of West Texas Intermediate (WTI) and a widening heavy oil discount has brought WCS prices to lows not seen since late 2008. After falling during the second half of 2014, both WTI and WCS have been climbing in late spring on hopes of tightening world oil supply and a weaker US dollar.

 
2015 CRUDE OIL PRICES, USD/BARREL

2015 CRUDE OIL PRICES, USD/BARREL

 

But those hopes have all but vanished. A brief slowdown in Canadian oil production was observed in the spring when wildfires in the Cold Lake area and several large-scale maintenance turnarounds took 1% of Canada’s heavy oil production offline for a few weeks. The heavy oil differential (i.e., the difference between WTI and WCS) hit a multiyear low of only $7 per barrel in June. As production came back online, however, the differential began climbing again, now sitting just below $18. The need for more pipeline infrastructure is plainly evident.

 
2015 HEAVY OIL DISCOUNT (DIFFERENCE BETWEEN WTI AND WCS), USD/BARREL

2015 HEAVY OIL DISCOUNT (DIFFERENCE BETWEEN WTI AND WCS), USD/BARREL

 

About 50% of Alberta’s oil exports are in the form of light synthetic crude oil, which trades near WTI prices. The remaining 50% is sold as a heavy oil blend, earning approximately WCS prices. WCS peaked at about $90 in the summer of 2013. Ever since then, prices have been slowly creeping lower, making lower highs and lower lows.

 
WESTERN CANADIAN SELECT MONTHLY AVERAGE PRICE (2005 TO PRESENT) NOTE: AUGUST MONTHLY AVERAGE PRICE REFLECTS AVERAGE TO DATE

WESTERN CANADIAN SELECT MONTHLY AVERAGE PRICE (2005 TO PRESENT)
NOTE: AUGUST MONTHLY AVERAGE PRICE REFLECTS AVERAGE TO DATE

 

So where do we go from here? WTI has yet to hit the March low of about $42 a barrel. Alberta heavy oil production is set to climb steadily through the end of the year as several major in-situ and mining projects ramp-up to full capacity. Although US production growth is slowing (not declining - just slowing), world oil production keeps climbing steadily and shows no sign of relenting any time soon. Add in the prospect of the US Federal Reserve tightening interest rates later in the year (which will boost the US dollar) and there’s a good chance we haven’t seen the lows of 2015 just yet. 

The only thing that would perk up WCS prices at this point is either a reduction in Canadian oil production (which won’t happen any time soon) or more pipeline capacity. The newly reversed Enbridge Line 9 is expected to begin shipping 300,000 barrels per day of heavy oil from Alberta to refineries in Sarnia and Montreal. Whether that’s enough to close the gap with WTI remains to be seen.

The historical oil prices, including Western Canadian Select, can be found on our Oil Prices page. Prices charts are updated daily.

Crude oil prices remain stuck in a trading range

Crude oil prices remain stuck in a trading range

CNRL reports another quarterly loss and blasts the provincial government

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