World's Cheapest Crude Hits Record Low as Oil Slump Deepens

Will Oil Oversupply End in the Next Six to 12 Months?
  • Western Canadian Select grade falls below $20 a barrel
  • More production shut-ins expected: Auspice Capital Advisors

A deepening oil market slump is adding fresh pain for producers of the world’s cheapest crude, raising the prospect that more production will be curtailed.

Spot prices for the Western Canadian Select grade fell to $19.81 a barrel on Wednesday, the lowest since tracking began in 2008, according to data compiled by Bloomberg. The benchmark, made up of heavy conventional production and bitumen blended with synthetic crude and condensate, fell with global grades after U.S. gasoline inventories surged the most in 22 years and crude supplies at the American storage hub in Oklahoma climbed to a record.

The low prices may push more of the highest-cost output offline. Producers including Baytex Energy Corp. and Canadian Natural Resources Ltd. have shut in more than 35,000 barrels a day of heavy oil and bitumen production capacity, according to company presentations and a report on the Alberta government website.

Current prices are “below shut-in levels,” said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. There’s no incentive to ship Canadian crude to the U.S. Gulf Coast and producers may start annual maintenance sooner than planned, he said. “We’re the last barrel produced and we’re the first barrel shut in.”

Maya crude, a heavy grade from Mexico, sank to $25.55 a barrel Wednesday, the lowest since 2004. West Texas Intermediate, the U.S. benchmark, tumbled to the lowest close in seven years, at $33.97. Brent, the European gauge, dropped to its lowest settlement since 2004 at $34.23.

Canadian producers are getting some cushion from the country’s currency, which has seen its value shrink along with crude. Most of Canada’s oil is exported and producers are paid in U.S. dollars, while many of their expenses for labor and equipment are paid in cheaper Canadian dollars. Western Canadian Select was worth C$28.14 on Wednesday, above the December 2008 low of C$27.03.

Still, the pain is being felt across Alberta, Canada’s largest oil-producing province. Energy companies are shelving new oil-sands projects and have cut more than 40,000 jobs nationwide, the industry’s main lobby group estimates. Capital spending for the 25 largest producers is poised to fall for a second straight year, dropping another 16 percent in 2016, data compiled by Bloomberg show.

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