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June Canadian Oil Contract Gains as Market Awaits Kearl Output

Canadian heavy oil for June delivery strengthened on the spot market as traders speculated that first delivery of supply from the Kearl oil-sands project may be delayed until the third quarter.

Production from the 110,000 barrel a day Kearl project in Alberta will “commence in the coming days,” Pius Rolheiser, a spokesman for Exxon Mobil Corp.’s Calgary subsidiary Imperial Oil Ltd. (IMO), said in an e-mail yesterday. Rolheiser also said April 1 that first production would come “in the next few days.”

Kearl oil could reach the market by June, since it will take roughly two months from production to delivery, though that date could slip, FirstEnergy Capital Corp. analyst Michael Dunn said in a telephone interview from Calgary.

“Since first oil hasn’t yet occurred, there’s more chance that could slip into July as days tick by,” Dunn said.

The price of Western Canada Select for June delivery strengthened 50 cents to a $15.25-a-barrel discount to U.S. West Texas Intermediate, according to Calgary oil broker Net Energy Inc. The grade is a heavy blend that includes diluted oil-sands bitumen.

When new production from Kearl arrives in the spot market, it is expected to increase supplies and lower prices. Any delay in production into July would help support prices in June, Dunn said.

May Delivery

The front-month May contract for Western Canada Select weakened 45 cents to a discount of $12.35 a barrel, Net Energy said. The grade reached its strongest price relative to WTI in six months on April 5, according to data compiled by Bloomberg.

May WCS prices have strengthened amid a seasonal decline in production from Alberta during the so-called spring breakup, when warmer weather turns roads and drilling sites in remote areas to mud, slowing production. The Canadian oil rig count dropped by 30 to 117 last week, down from this year’s high of 509 during the week ended March 1, Houston oil field-services company Baker Hughes Inc. (BHI) said April 5.

The price of Syncrude, a light oil produced from oil-sands upgraders, strengthened by 20 cents to a $9.20 premium to WTI, according to Net Energy data.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net

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