Canadian heavy crude oil discounts hit multi-year highs due to Gulf Coast pressure

Heavy crude oil in Alberta has dropped to its weakest price compared to US futures in more than four years. Western Canadian Select saw its discount grow to $31 a barrel compared to West Texas Intermediate as of Tuesday, marking the widest gap since October 2022 according to General Index prices. On the US Gulf Coast, the discount expanded to $23.50, which is the largest in data going back to 2018 based on figures from Link Data Services.

Causes And Market Pressures

This price gap is being driven by a buildup of supplies on the US Gulf Coast from Venezuelan imports along with high tanker rates that make exporting oil very expensive. The absolute price of Western Canadian Select in Alberta has mostly traded below $70 a barrel since June, even as the global benchmark Brent futures surged to about $115 a barrel. Meanwhile, the Baltic Dirty Tanker Index sits at 7,163 after hitting a record above 8,000 earlier this month, compared to staying below 2,000 before the US-Israeli war on Iran.

Industry And Government Response

While major Alberta oil sands producers own refineries that protect them from the widening price gap, pure producers have missed out on full benefits from rising oil prices driven by the Iran War. Currently, about 90 percent of Canada's oil goes south to US refiners. To counter this, the Canadian and Alberta governments are backing a new million-barrel-a-day pipeline to the coast of British Columbia to send oil to Asian markets. Canadian producer Tamarack Valley Energy Ltd. has signed up for long-term capacity on the expanded Trans Mountain Corp. pipeline starting next year. Company President Steve Buytels stated during an earnings call on Wednesday that heading west provides diversification that will help bring in higher revenues.

Context

Oil markets often experience local price drops when regional supply builds up faster than pipelines can move it away to other buyers. Shipping costs play a major role in global oil trade because moving crude across oceans requires large tankers whose rates change based on world events. Export diversification allows oil-producing countries to reduce their reliance on a single buyer market and seek better prices elsewhere.