Canadian Heavy Crude Jumps to Six-Month High on Spring Breakup

Canadian heavy oil prices reached a six-month high on the spot market amid a seasonal decline in production from Alberta.

Canadian oil rig counts dropped by 30 to 117 this week, down from this year’s high of 509 during the week ended March 1, Houston oil field-services company Baker Hughes Inc. said today. Canadian energy activity typically dips in April during the so-called spring breakup, when warmer weather turns roads and drilling sites in remote areas to mud, slowing production.

Western Canada Select, a heavy blend of diluted oil-sands bitumen, strengthened by $1.40 to a $12.10-per-barrel discount to U.S. West Texas Intermediate oil, according to Calgary oil broker Net Energy Inc. It was the smallest gap since Oct. 4, according to data compiled by Bloomberg. WCS prices also surged last spring, narrowing their discount to $12.75 on May 1.

“April sees the steepest decline in rig counts in Canada due to spring breakup, so there’s a seasonality factor,” David Bouckhout, senior commodity strategist with TD Securities in Calgary said in a phone interview. “You are also seeing some oil-sands production coming off because of maintenance, so you are therefore going to see a stronger bid for other blends.”

Some Alberta oil-sands producers are shutting downs their upgrader plants in Alberta, which produce synthetic light, sweet oil from heavy bitumen. Suncor Energy Inc. said it will perform a seven-week turnaround at its 350,000-barrel-a-day Fort McMurray, Alberta, upgrader in April and May. Canadian Natural Resources Ltd. said in November it plans to shut down its 110,000-barrel-a-day Horizon upgrader for 18 days in May.

Syncrude Declines

The price of Syncrude, a light oil produced from oil-sands upgraders, lost 55 cents against WTI to a $9.35 premium, Net Energy said.

Much of the strengthening in the Western Canada Select price was in barrels for May delivery. The price curve for future months widens sharply again versus U.S. prices, with June barrels trading at a $15.25 discount and July at an $18.25 discount, according to Net Energy data.

“The narrowing of the WCS differential is based on short-term factors,” Bouckhout said. “A longer-term price average in the mid-to-upper teens is more realistic, and the forward curve suggests that’s going to be the case.”

Western Canada Select prices dropped steeply in December and January, then reached a record discount of $42.50 a barrel on Dec. 14, as rising production filled up export pipeline capacity to the U.S.

Alberta Premier Alison Redford said Jan. 24 the “bitumen bubble” in Alberta would cut C$6 billion ($5.89 billion) from the province’s budget this year, forcing it to make cuts to public services.

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