Kearl Start Weakens Canadian Oil Near Strongest in 6 Years

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Canadian heavy crude prices weakened for the first time in four days after Exxon Mobil Corp. said production started ahead of schedule at its Kearl oil-sands expansion.

Western Canadian Select’s discount to U.S. benchmark West Texas Intermediate widened 35 cents to $7.80 a barrel at 2:06 p.m. Mountain time, data compiled by Bloomberg show. The crude’s price rose 10 cents to $52.17 a barrel.

The Kearl oil-sands expansion will ultimately double the project’s production to 220,000 barrels a day. The supply boost comes after Cenovus Energy Inc. and Canadian Natural Resources Ltd. said they resumed operations at three oil-sands sites that were shut last month because of a wildfire. Those closures helped shrink WCS’s discount to WTI to $7 on June 2, the narrowest in six years.

The discount is “going to have to widen out a little more to attract buyers,” Carl Larry, head of oil and gas for Frost & Sullivan LP, said by phone Tuesday.

The current discount doesn’t cover the $8.98 a barrel tariff to ship crude on Enbridge Inc. pipelines from Edmonton, Alberta, to Texas. U.S. imports of Canadian crude fell to 2.6 million barrels a day the week ended June 5, the lowest since January last year, U.S. Energy Department data show.

The Alberta wildfire that was discovered late last month near Cold Lake shut about 230,000 barrels a day of oil-sands production capacity. Another 200,000 to 300,000 barrels of capacity was down for maintenance, according to a June 1 report by Energy Aspects Ltd.

Canada’s oil-sands production was about 2.3 million barrels a day last year and will grow to 2.44 million this year and 2.8 million barrels in 2016, according to the Canadian Association of Petroleum Producers.

Oil sands produced in Northern Alberta account for more than half of the country’s crude output. Bitumen is either dug from the ground or steamed, melted and pumped out of the earth. Most is either diluted and shipped by pipeline or rail to refineries while some is processed into lighter synthetic crude using upgraders.

New pipelines including Enbridge’s Flanagan South and Enbridge and Enterprise Products Partners LP’s Seaway Twin have expanded access for heavy Canadian crude to the U.S. market.

(Updates price in second paragraph.)
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