Western Canadian Select hits fresh 6 year low
Western Canadian Select (WCS) hit a fresh 6 year low on Tuesday, falling below US$30 per barrel for the first time since March 2009. The heavy oil discount (the difference between West Texas Intermediate and WCS) remains stable at about $13.50 per barrel.
Although the differential is relatively low in absolute dollar terms, Canadian heavy producers could theoretically get 40% more revenue if their production was sold to market at West Texas prices. This makes a big difference for Canadian heavy oil producers such as Canadian Natural Resources and Cenovus, which sell much of their oil production as non-upgraded WCS.
While West Texas is down 58% from the highs of June 2014, WCS is down 63% for the same period. However, in Canadian dollar terms, WCS is down a more comparable 56% since June of last year. The lower Canadian dollar does provide a bit of a tailwind for Canadian oil producers.
WCS has averaged US$33.30 for the month of March to-date, at par with the January 2015 average of $33.25. The first fiscal quarter ends March 31st, which leaves 7 trading days before the end of the quarter. Note that WCS averaged approximately $60 per barrel in Q4 of last year. Barring any catastrophic event in the next 7 days, WCS will likely average $35 per barrel for Q1 of this year, representing a 40% drop in revenue for Canadian heavy oil producers. Release of Q1-2015 results for Canadian energy companies will begin rolling out at the end of April and through May.