Canadian crudes weakened on the spot market as the profits on oil-by-rail transport narrowed.
The discount of Western Canadian Select heavy crude to a competing grade, Mexican Maya, narrowed to $17.23 a barrel this week, the smallest spread in three months and down from $23.81 last week, according to data compiled by Bloomberg.
The spread now roughly matches the profit shippers can make by moving Canadian barrels to the Gulf Coast refining market. As the differential slips below rail costs, the incentive to ship barrels by rail diminishes. It costs from $17 a $21 a barrel to move oil by manifest train, according to a presentation by Calgary terminal operator Gibson Energy Inc.
Western Canadian Select weakened by 75 cents to a $27.50 discount to U.S. West Texas Intermediate crude, according to Calgary oil broker Net Energy Inc. Syncrude light oil weakened by $1.50 a barrel to a $6.75 discount, the broker said.
Rail transport costs about twice as much as pipeline movements. Companies are using rail because space is running out on Canadian export pipelines as production grows. Calgary pipeline companyEnbridge Inc. (ENB) said space is overbooked this month on its Mainline, the largest crude oil export system in Canada.
Canadian crude production will have grown 10 percent to 3.8 million barrels a day by the end of this year, according to a forecast by the National Energy Board, Canada’s federal energy regulator.