The price oil sands producers receive fell to almost $54 a barrel below the international benchmark on Tuesday, as the discount of Western Canada Select to US benchmark West Texas Intermediate (WTI) deepens to a level last seen nearly five years ago.
WCS – a blend of heavy oil sands crude and conventional oil – dropped to multi-year lows with the December contract weakening to $41.79 below WTI, a near 20% worsening in less than a week.
The relative weakness in oil sands crude comes on top off a slide in US oil to four month lows below $94 on Tuesday on fears of a seventh straight increase in the country's oil inventories and longer term prospects of Iranian oil returning to world markets.
While the Canadian blend has fallen further behind global benchmark prices, WTI's discount to North Sea Brent has narrowed substantially to around $12 a barrel, halving the $23 gap recorded in December.
Brent settled at $105.40 in Europe on Friday which translates to an effective price for bitumen-derived oil from Alberta's oil sands of just $51.40 a barrel.
The value of Syncrude, a light oil made from oil sands after undergoing an expensive upgrading process, has also reversed fortunes declining to a $15 discount to WTI last week, levels last seen in March 2012, against historical trading of a slight premium.
The pervasive bitumen discount to global oil prices is not because Alberta's oil sands crude is of inferior quality.
Maya heavy oil from Mexico is of similar quality to the oil sands blend but is priced at a $40 premium to Canadian crude today.
Unlike Canada, Mexico hedges its oil output and in September the Latin American nation locked in the best price for its crude in history at just over $90 a barrel for 2014.
The reason Canada's oil attracts these pricing levels is because the country only has one customer – over 99% of Canadian exports end up in the US.
Alberta's landlocked oil cannot reach lucrative growing markets in Asia because of a lack of pipelines which turns the province into a price-taker.