Canadian Heavy Oil Strengthens to Narrowest Discount in 4 Months

Canadian heavy oil prices strengthened on the spot market to their narrowest discount in four months as production from a major oil sands producer came in below expectations.

Suncor Energy Inc. oil-sands production increased 2 percent to 353,000 barrels a day in February from a month earlier, the Calgary company said in a statement yesterday. First quarter output has been 3 percent below expectations so far, with late latest results “slightly negative” for the company, RBC Capital Markets analyst Greg Pardy wrote in a note to clients.

Western Canada Select, a heavy blend of oil-sands bitumen, for April delivery gained $1.75 to a $23 discount to West Texas Intermediate, according to Calgary oil broker Net Energy Inc. It’s the narrowest discount since Oct. 24, according to data compiled by Bloomberg.

Rising production and limited pipeline space has put pressure on the price of Canadian oil over the last several months, with Western Canada Select reaching a record discount of $42.50 a barrel on Dec. 14. Less output from projects this winter has eased the pipeline constraints.

Production from Syncrude, the largest oil sands project in Alberta, declined 13.5 percent to 240,000 barrels a day in February, reflecting unreliability in mining operations and unplanned shutdowns at the upgrader, according to a March 1 news release by Canadian Oil Sands Ltd., the project’s largest owner.

Kearl Project

Imperial Oil Ltd.’s Kearl oil-sands project also didn’t come online as expected in January, which the company said was caused by abnormally cold weather in Alberta. The company said Feb. 1 that the project will ramp up to full rates of 110,000 barrels a day in the “next several months.”

Output from Suncor Energy Inc.’s 350,000-barrel-a-day upgrader in Fort McMurray, Alberta, will be reduced with the start of 14 weeks of work on a hydrogen plant late in the first quarter, the company said in its fourth-quarter earnings release Feb. 5.

Lower production freed up space on export pipelines out of Alberta. Enbridge Inc. export pipelines to the Midwest from Canada were not apportioned in March, the company said in a Feb. 21 e-mail. Export lines 4 and 67 carrying a combined 1.25 million barrels a day were apportioned for five months through February, meaning there wasn’t enough space to meet all requests to transport oil.

Syncrude Sweet prices declined for the first time in four days, losing 55 cents to trade at a $5.95 premium, according to Net Energy Inc. data. The grade on March 4 reached its highest level since Oct. 4, according to data compiled by Bloomberg.

In the Gulf Coast market, Light Louisiana Sweet’s premium to WTI strengthened by 25 cents to $22.10 a barrel at 4:16 p.m. New York time, according to data compiled by Bloomberg. Heavy Louisiana Sweet’s premium rose 30 cents to $22.80.

Mars Blend’s premium widened 10 cents to $17.80 a barrel over WTI, and Poseidon gained 30 cents to a $17.95 premium.