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One-two hit for oil sands producers

Canadian Natural Resources announced this week it is poised to restart its Horizon plant seven months after it went up in flames and aims to spend over $2 billion to more than double its capacity.

The Horizon outage led to a shortage of syncrude – a light oil manufactured from bitumen – which helped Alberta’s producers attract a premium of $18 above benchmark US oil prices.

That nice little earner will now likely melt away and follows a Reuters poll that showed a majority of analysts and oil traders expect the spread between US and international crude prices to surpass $30 in the next year.

Canada exports 2 million barrels Canada exports two million barrels of crude to the US per day of which 1.5m come from Alberta’s oil sands.

The Globe and Mail quotes Canadian Natural’s president Steve Laut: “When we bring Horizon on, I would expect that premium to shrink – and we normally get about a $1 discount.”

Bloomberg reported on Wednesday the premium for Syncrude over West Texas Intermediate climbed $2.75, its highest since at least 2006 after Shell reduced processing rates due to unplanned work.

Stocks at the US oil-storage hub of Cushing, Oklahoma fell to its lowest level this year and that the glut may have passed its peak, meaning the record high price spread between US and European benchmark crude oils that topped $23/barrel in July will start to recede. West Texas Intermediate has historically traded at a premium to North Sea Brent crude price which is set in Europe.  

According to a Reuters poll released on Thursday the majority of analysts and oil traders surveyed expects the spread to widen further and surpass $30 at some point in the next year.

Reuters also reports a vocal minority regards the premium as dubious and quotes one trader as saying: “The huge spread tells me that some big banks or a few of the biggest oil traders/refiners are speculating on spreads and have been able to push Brent unjustifiably high.”

Reuters reports Canadian Natural began starting up the repaired 110,000 barrel a day capacity units at its Horizon oil sands upgrader in northern Alberta this week. Commissioning should take two to three weeks.

Syncrude or synthetic crude is a light low-sulphur oil derived from bitumen mined in the Fort McMurray area in Alberta to make it transportable.