Canadian Heavy Oil Gains as Upgraders Ramp Up After Maintenance

Western Canadian Select heavy oil gained strength on the spot market as upgraders returned from maintenance.

Suncor Energy Inc. said this week it completed work on its Fort McMurray upgrader, and two similar plants in Alberta and Saskatchewan are expected to ramp up operations this month after completing maintenance. Upgraders process heavy oil into light synthetic crude.

WCS, a heavy crude produced from oil-sands bitumen, gained 50 cents a barrel to a $29 discount to U.S. benchmark West Texas Intermediate, said Calgary oil broker Net Energy Inc. It was the narrowest discount in more than two weeks, according to data compiled by Bloomberg.

“Suncor’s Fort McMurray upgrader is finishing its downtime,” said Judith Dwarkin, chief energy economist at ITG Investment Research Inc. in Calgary. “That affects the demand for heavy.”

WCS prices have been rebounding this week after reaching an eight-month low against WTI of $34.50 a barrel on Oct. 4, which was driven by declining U.S. refinery demand during the fall months, Dwarkin said.

Refineries in PADD 2, or the U.S. Midwest, the major importers of Canadian output, scaled back operations by 7.3 percentage points over the past four weeks to 86.5 percent of capacity, U.S. Energy Information Administration data show. Those rates are down from a peak of 95.2 percent in August.

Canadian oil sands production is expected to increase at an annual rate of about 250,000 barrels a day through the end of the decade from about 1.8 million barrels now, Altaf Nanji, an analyst at RBC Capital Markets in Toronto, wrote in a note to clients today.

Syncrude, a light oil processed from oil-sands bitumen, gained 10 cents a barrel to a $9.65 discount to WTI, NetEnergy said. The grade had fallen to a $13.50 discount, the widest in 18 months, on Oct. 4, according to data compiled by Bloomberg.

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