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CHART: Oil sands crude’s deepening discount

After reaching six months highs in April, Canadian crude is once again falling behind US and global oil prices.

The price oil sands producers receive remains stuck at almost $30 a barrel below the international benchmark on Monday, as the spread between Western Canada Select and US benchmark West Texas Intermediate (WTI) widens again.

WCS – a blend of heavy oil sands crude and conventional oil – recovered from five-year lows of $41 below WTI in December to $15 in March-April but last week the crude stream weakened a massive 20% to a more than $20 discount.

Canadian crude’s declining value is in stark contrast to the change in fortunes of American oil: WTI’s discount to the global oil price in the form of North Sea Brent has narrowed substantially, hitting its best level since December 2011 of just $8.58 below on Friday. The discount was back above $9 on Monday but still shows a massive improvement from the $23 discount in December.

Brent settled at $105.10 in Europe on Friday which translates to an effective price for bitumen-derived oil from Alberta’s oil sands of $75.20 a barrel.

The value of Syncrude, a light oil made from oil sands after undergoing an expensive upgrading process, has also declined recently to a $2 premium from $6 above WTI last month.

The pervasive bitumen discount to global oil prices is not because Alberta’s oil sands crude is of inferior quality.

The price of Maya heavy oil in Mexico sold in the US Gulf and Venezuelan Merey Crude is of similar quality to WCS but is priced in line with Brent; that is a $30 premium to Canadian crude.

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.

CHART: Oil sands crude's deepening discount

Source: Macquarie Private Wealth