Canadian crude oil is now selling at a $27-per-barrel discount relative to West Texas Intermediate (WTI), the biggest difference in more than four years.
Western Canada Select (WCS), a benchmark for oil from Alberta’s oil sands, plunged to $30 per barrel. WCS trades at a discount to WTI, due to lower quality of oil as well as transportation costs to move oil hundreds of miles out of Alberta. But a discount usually does not exceed $10.
Such a price fall has not been observed in many years. There are several reasons. First, the spill and shutdown of TransCanada’s Keystone pipeline in November slowed shipments of oil from Canada to the US, thus resulting in a slight rise of the WTI price. Meanwhile, this led to a supply glut in Canada, sending the WCS price down.
Interruptions of supply through Keystone were the main reason for the WCS price fall, but the absence of an alternative pipeline is a crucial issue.
At the end of the day, the current $27-per-barrel discount results in a loss of $20 million per day for Canada’s oil producers, according to the estimates of IHS Energy.
Perhaps, this explains the relative weakness of the Canadian dollar.
