Canada heavy crude discount hits widest level on record

(Reuters) – The Canadian heavy oil differential closed at its widest point on record against the West Texas Intermediate (WTI) benchmark on Monday in thin trade, as transportation constraints continued to weigh.

Western Canada Select (WCS) heavy blend crude for October delivery in Hardisty, Alberta, settled at $42.00 a barrel below the WTI benchmark crude futures CLc1, compared with Friday’s settle of $41.00, according to Shorcan Energy brokers.

Higher production compared with the second quarter has swelled volumes in storage and put pressure on prices, while tight pipeline space and insufficient rail capacity have pushed the differential even wider, say analysts.

Some of the recent price weakness can be attributed to leftover barrels stranded by Canada’s pipeline apportionment system, where shippers nominate a certain volume of barrels but see their shipments reduced if lines are oversubscribed.

“Often what we see post-apportionment is simply weak pricing in the aftermarket,” said Matt Murphy, an energy analyst with Tudor, Pickering, Holt & Co.

Murphy noted that rail volumes continue to rise, but still appear to be insufficient to clear the market.

A jump in the global benchmark for crude also weighed on the Canadian prices, with Brent LCOc1 rising 3 percent to a four-year high above $80 a barrel after Saudi Arabia and Russia ruled out any immediate increase in production.

The transportation constraints mean Canadian producers are not able to get their barrels to market, leaving them unable to fully benefit from rising benchmark prices.

Monday’s WCS close surpasses a previous record discount of $41.50 reached in November 2013.

Light synthetic crude from the oil sands for October delivery settled at $17.75 under WTI, recovering slightly compared with Friday’s settle of $18.90 under.

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