Canadian heavy crude has sunk to its weakest level against US oil futures since 2018. Rising tanker rates and more Venezuelan heavy oil in the US Gulf drive the gap, and Imperial Oil expects the lower price to persist through the fourth quarter.
Western Canadian Select's discount in Alberta to a monthly average of West Texas Intermediate futures expanded to $31.70 per barrel Tuesday, the widest since November 2018, according to Modern Commodities and General Index prices. Cold Lake crude's discount on the US Gulf Coast reached $23.10, matching levels not seen in eight years.
Tanker rates and Venezuelan barrels widen the gap
The expanding discount stems from rising global oil tanker rates and increased imports of competing Venezuelan heavy crude in the US Gulf. Disruptions from the Iran war pushed tanker rates higher, constraining shipments for overseas markets, particularly off the US Gulf Coast where much Canadian oil is delivered.
Meanwhile, more Venezuelan oil is going to US refineries and less to Asia. Imperial Oil, a unit of ExxonMobil, said on an earnings call last week that the lower price for Canadian oil is expected to persist through the fourth quarter.
Heavy oil producers cannot fully benefit from higher crude prices
The wider discount has limited heavy oil producers' ability to fully benefit from a rise in global crude oil prices, which now sit above $100 per barrel. Some oil sands producers, such as Suncor Energy, have refineries that can benefit from lower crude prices.
Today's cause differs from 2018. Then, the discount expanded to almost $50 per barrel as production exceeded pipeline capacity, and Alberta's government imposed production limits on the largest producers. Today's widening results from international factors rather than a local pipeline shortage.
Trans Mountain exports hit a record
The wider Gulf discount has encouraged shipping off the Trans Mountain Pipeline, the only pipeline running from northern Alberta to Vancouver. Tanker exports off Trans Mountain rose to a record last month. Rates for the smaller Aframax tankers serving Trans Mountain have increased less than those for the supertankers serving the US Gulf, and the shorter distance to East Asian markets makes shipping relatively less expensive.
Source: Investing.com
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