Canadian Crude Discount to WTI Narrows as Shipments Rise

Canadian heavy crude’s discount to the U.S. benchmark shrank as shipments toward the U.S. Gulf Coast rose and the price approached $30 a barrel.

Western Canadian Select for February traded $14.45 a barrel below West Texas Intermediate at 2 p.m. Mountain time, 90 cents narrower, according to Net Energy Inc., a Calgary-based broker. The discount was the narrowest since Oct. 30 as the absolute price fell $1.15 to $33.23, the lowest since February 2009, according to data compiled by Bloomberg.

Enterprise Products Partners LP is operating the 450,000-barrel-a-day Seaway Twin crude line from Oklahoma to Texas at full rates after startup last month, a person familiar with operations said Dec. 30. Along with Enbridge Inc.’s Flanagan South, Seaway Twin will help double Canadian crude shipments to 400,000 barrels a day to the Gulf Coast, where it will compete with Middle Eastern and Latin American crudes, according to Calgary-based ARC Financial Corp.

“There is quite a bit of competition for the heavy barrels in the Gulf,” Carl Evans, crude oil analyst at Genscape Inc., said in a phone interview from Boulder, Colorado. “With that new production coming down, I think the Saudi medium barrels are trying to compete with the heavy barrels.”

Canada’s heavy crude is among the cheapest in the world. Most is produced from the thick oil sands of Alberta, where it must either be dug out of the ground or pumped out after being warmed with steam and then upgraded into lighter synthetic crude. Most of the oil is shipped thousands of miles by pipeline or rail to refineries in the U.S.

Crude Shipments

Canadian crude shipments to the Gulf Coast, where refiners have invested billions of dollars in machinery to process heavy crude, averaged 196,000 barrels a day in the first 10 months of 2014 and rose to a record 288,000 barrels a day in October, according to U.S. Energy Department data.

As those volumes have risen, Canadian crude’s discount to competing crudes has shrunk. WCS traded at $6.04 a barrel discount to Mexican Maya today, the narrowest since Oct. 14, according to data compiled by Bloomberg. The discount to Saudi medium fell to $10.12 a barrel, the narrowest since July 2013.

Crude prices, which have fallen 54 percent in the past six months amid rising U.S. production, are squeezing Canadian producers. The number of Canadian oil rigs fell to the lowest level since 2010 last week, Baker Hughes Inc. data show. Crew Energy Inc. said today that about 1,000 barrels of oil equivalent a day of heavy oil and gas will remain shut in pending a recovery in commodity prices.

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