Canadian Crudes Strengthen as Price Reflects Oil-by-Rail Costs

Canadian crudes strengthened on the spot market as prices reflected the cost of rail transport to the Gulf Coast.

Western Canadian Select heavy crude rose $1 a barrel to a $30.25 discount to U.S. benchmark West Texas Intermediate oil, according to Calgary oil broker Net Energy Inc. WTI settled at $96.04 a barrel on the New York Mercantile Exchange.

WCS traded $22.68 below Mexican Maya heavy oil on the U.S. Gulf Coast as of 4:12 p.m. New York time, according to data compiled by Bloomberg. That difference reflects the cost of about $20 a barrel in moving the oil to the Gulf Coast from Alberta, said Judith Dwarkin, chief energy economist at ITG Investment Research Inc.

“What that’s telling you is that the marginal barrel of Canadian heavy is clearing at the Gulf Coast,” Dwarkin said in a phone interview from Calgary.

Rail transport costs twice as much as pipeline, Dwarkin said. Companies are using rail because space is running out on Canadian export pipelines as production grows. Calgary pipeline company Enbridge Inc. (ENB) said space is overbooked this month on its Mainline, the largest crude oil export system in Canada.

Canada’s heavy crude production will rise 10 percent to 1.48 million barrels a day this year, according to a forecast by the country’s National Energy Board. Suncor Energy Inc., the country’s largest producer, said November oil-sands production reached a new monthly record of 437,000 barrels a day.

The price of Canadian Syncrude, a light oil produced by oil-sands upgraders, also strengthened, gaining $1.35 a barrel to an $8.75 discount to WTI, Net Energy said.

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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