Canadian Oils Weaken as Output Seen Recovering From Spring Slump

Canadian grades weakened on the spot market on the first day of June index trading as a temporary drop in spring production is expected to end by the summer months.

Maintenance that had shut down production at two Alberta oil-sands upgraders during May is expected to be over by June. A seasonal dip in Canadian output because of spring thawing is also ending.

Western Canada Select heavy oil for June delivery weakened $1.50 to a $19-a-barrel discount to U.S. West Texas Intermediate oil, according to Calgary oil broker Net Energy Inc. It’s the widest gap since March 20, according to data compiled by Bloomberg.

“In WCS trading some of the conditions that caused it to tighten are reversing now,” said David Bouckhout, commodity strategist for TD Securities Inc. in Calgary. “A lot of the maintenance that caused tighter supply in synthetics is certainly going to reverse now that upgraders are coming back online.”

June-delivery Syncrude, a synthetic light oil produced from Canadian bitumen, weakened 90 cents to a $2.10-a-barrel premium to WTI, Net Energy said. It was Syncrude’s lowest premium since Feb. 25, according to data compiled by Bloomberg.

In early April WCS had reached its narrowest discount and Syncrude had reached its highest premium in six months as supplies were limited during spring thawing and plant maintenance.

Upgrader Turnarounds

Suncor Energy Inc. (SU) said it’s performing a seven-week turnaround at the 110,000-barrel-a-day Upgrader 1 in Fort McMurray in April and May. Canadian Natural Resources Ltd. (CNQ) said it plans to shut down its 110,000-barrel-a-day Horizon upgrader for 18 days in May.

Canadian rig counts also slumped in April amid a seasonal decline in output from Alberta during the so-called spring breakup, when drilling and equipment transportation is slowed.

Today was the first day of index trading for June delivery. The Canadian spot market index period begins on the first of the month and sets the price averages for grades to be delivered to buyers the following month. The majority of Canadian spot oil trading occurs during the index period, which ends for June delivery on April 17 and begins for June delivery on May 16.

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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