Heavy discount widens as producers ease production cuts

Canadian heavy crude’s discount widened versus West Texas Intermediate (WTI) on Thursday as producers gradually restore some shut-in production.Western Canada Select (WCS) heavy blend crude for August delivery in Hardisty, Alberta, traded at $8.50 per barrel below WTI, according to NE2 Canada Inc, wider than Wednesday’s settle of $7.90 under.

Reduced production levels largely remain in place after spring curtailments, keeping differentials relatively tight, a Western Canadian industry source said. Some widening has been expected, traders say, as output is slowly restored and refinery demand climbs.

Western Canadian crude supplies look to come back online through the third quarter, Peters & Co said in a note. Currently there is 200,000 to 300,000 barrels per day of excess pipeline capacity, but supply is likely to match capacity in the fourth quarter, resulting in modest rail requirements, Peters said.

Alberta’s in situ bitumen production fell 2% in May from the previous month to 1.27 million barrels per day, RBC Capital Markets analyst Greg Pardy said in a note.

Light synthetic crude from the oil sands for August delivery traded at $2.50 under WTI, after Wednesday’s settle of $2.70 under.

Global oil prices fell as investors worried that renewed lockdowns to contain the spread of coronavirus in the United States would again sink fuel consumption.