Recently, prices for heavy crude oil in Canada have dropped to $36.66 a barrel. Once again, it is coming under pressure due to restrictions on pipeline capability.
Normally, Western Canada Select (WCS) trades at a discount relative to West Texas Intermediate (WTI).
It is for the reason of the characteristic differences and the long-distance it demands to travel.
However, the discount has a tendency to increase. It will be resulting in a drop in WCS price when oil producers run into pipeline bottlenecks.
In more extreme cases, there would be a blowout in the price differential between WCS and WTI, just like way back in 2018.
Moreover, they can understand this as a kind of oversupply of oil stuck in Alberta.
In the previous year, Alberta positioned mandatory cuts into action. The placing is to rescue WCS prices.
The prices declined to as low as $13 a barrel in late 2018. It means that they were trading almost $50 a barrel below WTI.
To add, the cuts that the provincial government imposed have bolstered WCS prices immediately.
Price Estimates on 2020
Moving forward to 2020, WCS is once again trading at much softer levels than the U.S. benchmark.
Last Friday, JBC Energy noted, “Canadian crude failed to participate in the relatively constant price increase since October, remaining largely below $40 per barrel.”
So far, in 2020, WCS prices have also been trading at a discount relative to WTI of around $23 a barrel.
The level is a more significant discount that they have witnessed after the Keystone pipeline leaked some months ago.
Currently, WCS is trading at its most widespread discount since December 2018.
In addition, this is the month before Alberta’s mandatory fabrication cuts went into effect.
JBS also indicated that the restrained prices are approaching the back of strengthened supply.
It is in particular of heavy crude amid upgrader maintenance.
However, in November, oil sands production increased 80,000 bpd in contrasted to the same month a year earlier.