Canadian crudes jumped on the spot market on concern that frigid temperatures will affect northern production and transportation.
Temperatures in Fort McMurray, Alberta, where the bulk of Canadian oil-sands production is centered, dropped to minus 38 degrees Celsius (minus 36.4 Fahrenheit) late yesterday, according to The Weather Network.
“There is no doubt that the cold weather is impacting operations up there,” said Andy Lipow, president of Houston-based Lipow Oil Associates LLC. “The market may be sensing that there is going to be some reduction in supplies.”
Western Canadian Select heavy oil for February delivery reached the strongest level in five months, narrowing its discount to West Texas Intermediate oil by $3.90 a barrel to $19.85, according to Calgary oil broker Net Energy Inc. Contracts for March and second-quarter delivery also gained at least $2 a barrel.
“Anything below minus 30 would probably be a threshold,” said Mike Dunn, an analyst with FirstEnergy Capital Corp. in Calgary. “In the past when it gets cold, the productivity goes down, and I’m sure there’s a slightly higher risk of things going wrong with the facilities.”
Other Canadian crudes also strengthened against the U.S. benchmark. Canadian Edmonton Sweet gained $4 a barrel to a $5.25 discount to WTI, Net Energy said. Syncrude, a light crude produced in an oil-sands upgrader, added $4 a barrel to trade at a $1.50 premium to WTI.
Crude produced in the Bakken fields in Saskatchewan and in North Dakota also rose. Bakken for February delivery in Clearbrook, Minnesota, reduced its discount by $4 to $3 versus WTI, Net Energy said.
Bakken production has also been affected by low temperatures, Lynn Helms, director of the North Dakota Mineral Resources Department, said Dec. 13 on a conference call. Early December production was “not so great” because of arctic temperatures, icy roads and snowfall, he said.
Bakken oil prices may also be rising because of production concerns in Canada, Lipow said.
“When you do have issues up in Canada, the Bakken moves up with it as people grab Bakken instead of Canadian sweet,” Lipow said.
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