Canada is Facing a Heavy Crude Crisis
by Tsvetana Paraskova (feat. Kevin Birn)
March 16, 2018
Canada’s benchmark heavy crude oil widened its discount to WTI to the largest in six trading sessions on Thursday, as additional storage capacity in Alberta and data about lower crude-by-rail shipments added concerns over the domestic oil glut, as TransCanada’s Keystone Pipeline has yet to return to normal pressure levels following a leak and temporary shutdown last November.
On Thursday, Western Canadian Select was trading at a discount of US$27 a barrel to WTI. The discount widened to the biggest level, US$30.55 a barrel, in four years on February 5, after a selloff following the temporary shutdown of Keystone in mid-November.
This week, market participants were digesting news about increased storage capacity and January crude-by-rail data. Crude-by-rail exports out of Canada fell by 11.3 percent month on month in January to 140,959 bpd, according to the latest data by Canada’s Crude Oil Logistics Committee, quoted by Platts. Analysts had expected rail crude exports to be either flat or down, because Canadian rail operators and customers had reported delays in shipments due to extreme weather.
In addition, Kinder Morgan Canada and Canadian midstream operator Keyera said earlier this week that they added two additional tanks at the Base Line Terminal for service ahead of schedule. The two tanks add an additional 800,000 barrels of crude storage to the 1.6 million barrels currently in operation.
Meanwhile, data from Canada’s National Energy Board (NEB) showed that the Keystone Pipeline, which was restarted on November 28 after a shutdown on November 16, had throughput volumes of 582,000 bpd in December, following a slump to 298,000 bpd in November.
Keystone was restarted at reduced pressure, as per U.S. regulation. TransCanada has managed to work around pressure restrictions and the January volumes are expected to be close to the December throughput, Kevin Birn, a senior analyst with IHS Markit, told Platts.
“The word out there is volumes in February and March will be lower, as TransCanada is carrying out a full integrity check on Keystone,” Birn added.
Canada’s heavy crude is expected to remain at hefty discounts to WTI in the next few years, as takeaway pipeline capacity is unable to meet rising production from new oil sands projects sanctioned before the downturn.