Canadian heavy crude reached its strongest price against U.S. oil in six months as the starting date for a new pipeline to the Gulf Coast neared.
TransCanada Corp. (TRP)’s line to near Houston from Cushing, Oklahoma, is scheduled to begin shipping as much as 700,000 barrels of oil a day on Jan. 22. Refineries on the Gulf Coast have specialized equipment to process heavy crudes from Mexico and Venezuela, and increasingly from Canada.
Western Canadian Select heavy crude for February delivery narrowed its discount to U.S. benchmark West Texas Intermediate oil by 90 cents to $18 a barrel, according to Calgary oil broker Net Energy Inc. It was the narrowest discount since July 19, according to data compiled by Bloomberg.
The spot market “is pricing in for transportation down to the U.S. Gulf Coast,” said David Bouckhout, senior commodity strategist for Toronto-Dominion Bank in Calgary. “Increasing takeaway capacity, particularly out of Cushing, and increased rail capacity will potentially allow Canadian heavy oil producers to have better access to demand.”
Abnormally cold weather in Canada and the U.S. helped to boost WCS prices at the beginning of the month from a $23 discount in December, as freezing equipment hindered production and oil supplies.
Bouckhout said demand and supply for WCS looked well-balanced, with a relatively flat futures curve for the next several months. Over-the-counter swaps trading showed WCS’s discount to WTI near the current level of $18 through June.
“It will be difficult to see a sustained rally that narrows the differential much more,” Bouckhout said in a phone interview from Calgary. “On the other hand, I don’t see too much that would cause any widening pressure either, unless of course there’s an unexpected disruption.”
Also on the spot market, Canadian Syncrude light oil produced from oil-sands bitumen strengthened by 50 cents to a $1.75 premium to WTI, Net Energy said. Conventional Edmonton Sweet oil narrowed its discount to WTI by 40 cents to $4.75.