Since mandatory production cuts were announced in December, local heavy crude has gone from too cheap to too expensive
Trying to fix the crude market has been hard enough for OPEC. Alberta’s go at it is proving a bigger challenge than the oil-rich Canadian province anticipated.
On Monday, Alberta dialled back the cuts for the third time since they were implemented in January. But come Friday, the discount on Western Canadian Select oil was even less appealing for crude-by-rail than when the week started: It was less than US$10 a barrel below West Texas Intermediate futures for the first time in more than a month.
WCS needs to trade at a discount of at least US$15 a barrel to Mexican Maya, a similar type of crude, to make it worthwhile to ship it to the Houston area, Birn said. The gap is currently less than US$12. Canadian producers, on the other hand, say the discount to the U.S. benchmark would need to be US$15 to US$18 a barrel. It’s at US$9.25.
This week’s easing of Alberta’s curtailment brought the cuts to 175,000 barrels a day, little more than half the initial 325,000. The province plans to reduced the restriction by 25,000 barrels a day in May and another 25,000 in June, saying that warmer weather will allow producers to cut back the volume of diluent needed to make oilsands bitumen flow through pipelines.
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