Canadian Oil Discount Exceeds $30 Amid Gulf Coast Pressures

The gap is being driven by a supply build-up in the Gulf of Venezuelan imports and high tanker rates that make exporting oil expensive. While many of the biggest Alberta oil sands producers own refineries that provide a natural hedge to the widening differential for Canadian crude oil, the growing discount has prevented pure producers from fully benefiting from the run-up in oil prices due to the Iran War.

The Canadian and Alberta governments have prioritized diversifying oil trade away from the US amid a wider trade dispute. They are backing a new million-barrel-a-day pipeline to the coast of British Columbia, where oil could be loaded onto large tankers for Asian markets. Currently, about 90% of Canada’s oil heads south to US refiners. Part of that push is so Canadian oil can get better prices with more access to foreign markets.

The absolute price of Western Canadian Select in Alberta has mostly traded below $70 a barrel since June, according to General Index, even as the global benchmark Brent futures surged to about $115 a barrel. The price pressures in the US are a combination of increased imports from Venezuela, which is similar in quality to Canadian oil, and sky-high shipping rates that have driven down demand. The Baltic Dirty Tanker Index, a measure of the cost of transporting crude oil on major global shipping routes, is 7,163 after rising to a record above 8,000 earlier this month, according to data compiled by Bloomberg.

The index was below 2,000 before the US-Israeli war on Iran. Canadian heavy oil producer Tamarack Valley Energy Ltd. is one such producer affected by a wider differential. The company has signed up for long-term capacity on the expanded Trans Mountain Corp. pipeline, which runs from Alberta to the Vancouver area, starting next year. Having more of its product eventually heading west provides “diversification of that barrel into different markets” that his firm believes will help bring in higher revenues, President Steve Buytels said during an earnings call on Wednesday. More stories like this are available on bloomberg.com