By Nia Williams and Catherine Ngai
CALGARY, Alberta/NEW YORK, Dec 18 (Reuters) - Canadian oil producers are running out of options to get crude to market as pipeline and rail capacity fills up, driving prices to four-year lows and increasing the risk of firms having to sell cheaply until at least late 2019.
This will drive down the profit margins for the oil sands industry, already struggling to compete with cheaper and abundant supplies from U.S. shale. A number of foreign oil majors have left Canada’s oil sands to invest in more profitable U.S. shale plays, selling over $23 billion in Canadian assets this year alone.
Canada’s oil sands output is still growing - but only as projects under construction are completed and smaller expansions come online. Oil firms are not commissioning large new projects because they cannot build them profitably with oil in the $50s a barrel.
The deeper discount on crude means next year could be just as tough for Canadian producers from a price perspective as 2017, even though international crude prices have strengthened.
“We have a build-up of supply and that’s only going to get worse next year. We are adding more and more pressure into a constrained export system,” said Wood Mackenzie analyst Mark Oberstoetter.
The volume of crude in storage has hit record levels in western Canada and heavy crude is trading near its widest discount to U.S. crude since December 2013, driven by increased supply and a leak on TransCanada Corp’s Keystone export pipeline last month.
The discount on Canadian heavy crude blew out to as much as $28 a barrel below the West Texas Intermediate benchmark, pushing the outright price of Canadian barrels to less than $30.
Many traders and analysts expect the discount to be wider in 2018 than the negative $12 a barrel year-to-date average as oil supply rises.