WTI vs. Western Canadian Select, Why the $30 spread?

[Drewski Canuck]

It is no secret that since 2014 Western Canadian upgraded oil has been trading at a gross discount. Lately, it has been running at $30!!!

As it stands, the Heartland Upgrader will not start operating until some time in 2023, at which time the Bitumen in Kind for the Provincial Royalty will be upgraded, and the profits taken on the unfair difference in price, will be taken at home.

However, what could possibly justify such a spread, other than the fact that the US Multi National Oil Cos in Fort McMurray deciding to sell themselves the oil to their Gulf Coast Refineries for a steep discount.

I wonder if Justin Trudeau has any IDEA what the differential has cost CANADA since 2014? If the Northern Gateway Pipeline had gone ahead, there would have been a world market for the WCS Oil, and Alberta and Canada would not be robbed blind.

Perhaps the Federal Conservatives could ask THAT QUESTION in Parliament.

Drewski

[bessiedog]

Agreed.

That has always ****ed me off.

Not getting the energy East pipeline ****es me off even more.

[MooseRiverTrapper]

The SPR releases is heavy sour, similar to WCS that is heavy and sour. Basically the market was flooded the last 6 months with heavy sour out of America’s strategic reserves that is being used a political weapon.

[Twisted Canuck]

But, price on pollution! Save the penguins!!

[NCC]

Oil is the same as cars, trucks, tractors or anything else. The price is based on what someone is willing pay, not the cost of production. I agree that if we had access to other markets, we would find someone willing to pay more than we are currently getting.

[Peacepipe]

It's all about supply and demand. Summer months refineries like heavy oil for making asphalt during paving season and the spread gets closer. Winter months it widens. It costs more to refine heavy oil then WTI hence the spread.
This article has a good explanation.


https://www.oilsandsmagazine.com/mar...iscount-to-wti

[zabbo]

Originally Posted by Drewski Canuck

It is no secret that since 2014 Western Canadian upgraded oil has been trading at a gross discount. Lately, it has been running at $30!!!

As it stands, the Heartland Upgrader will not start operating until some time in 2023, at which time the Bitumen in Kind for the Provincial Royalty will be upgraded, and the profits taken on the unfair difference in price, will be taken at home.

However, what could possibly justify such a spread, other than the fact that the US Multi National Oil Cos in Fort McMurray deciding to sell themselves the oil to their Gulf Coast Refineries for a steep discount.

I wonder if Justin Trudeau has any IDEA what the differential has cost CANADA since 2014? If the Northern Gateway Pipeline had gone ahead, there would have been a world market for the WCS Oil, and Alberta and Canada would not be robbed blind.

Perhaps the Federal Conservatives could ask THAT QUESTION in Parliament.

Drewski

That POS has never had any idea about anything! 20 thousand inklings to make a clue and he's working on inkling number one!

[golferac]

The SPR release has been heavy sour and the Toledo BP/Husky refinery had an severe incident and is a large receiver of heavy oil.

[Penner]

There are several factors but the primary drivers as to why WCS sells for less compared to WTI is WCS is a heavy crude (thicker) whereas WTI is light crude (thinner). Heavy crude is much more difficult to transport and to refine. There are only so many refineries that can accept heavy crude. That and WCS is landlocked are the biggest factors as to why there is such a disparity between the two.

The government doesn’t really come into play on this one outside of disallowing pipelines to tide waters or new pipelines / projects in general but that’s another conversation.

[jstubbs]

OP does have a point. Northern Gateway would have had an uplifting price effect for WCS. Remember that WCS is a spot price (that is actually priced in the difference between there and WTI), so it’s the cost before moving it to your desired refinery or storage. Maya Crude is a similar grade (heavy sour) but it currently trades for $13/bbl more than WCS. So $13 of the total $18 WTI spread is due to export constraints costs.

[Penner]

Also note much of the crude coming out of AB is upgraded and sold as a synthetic blends which are normally benchmarked very close to WTI.

[Drewski Canuck]

Originally Posted by jstubbs

OP does have a point. Northern Gateway would have had an uplifting price effect for WCS. Remember that WCS is a spot price (that is actually priced in the difference between there and WTI), so it’s the cost before moving it to your desired refinery or storage. Maya Crude is a similar grade (heavy sour) but it currently trades for $13/bbl more than WCS. So $13 of the total $18 WTI spread is due to export constraints costs.

I'm not very good at math, BUT if Western Canada produces 500,000 barrels of heavy WCS Oil, and there are 3650 days in lets say, 10 years of our suffering, that's 18,250,000 barrels of oil production at lets say $20 USD discount, that number when taxed at the various levels of Government would have made Canada a very wealthy Nation.

Pierre P should raise this in Parliament. The money lost would have paid a nice chunk of Government debt at all levels.

Just saying.

Drewski

[EZM]

Originally Posted by Penner

There are several factors but the primary drivers as to why WCS sells for less compared to WTI is WCS is a heavy crude (thicker) whereas WTI is light crude (thinner). Heavy crude is much more difficult to transport and to refine. There are only so many refineries that can accept heavy crude. That and WCS is landlocked are the biggest factors as to why there is such a disparity between the two.

The government doesn’t really come into play on this one outside of disallowing pipelines to tide waters or new pipelines / projects in general but that’s another conversation.

NAILED IT

It is what it is and would never expect it to sell on par with WTI (at least not over a long term average).

[big zeke]

Originally Posted by EZM

NAILED IT

It is what it is and would never expect it to sell on par with WTI (at least not over a long term average).

I don't agree with you and I believe taking an "It is what it is" approach is a bit too defeatist for me.

A few years ago I worked on a project selling east European crude (essentially LLK) into refiners in the Med...for WTI; at the time the WCS diff was like $17-20. There were several refiners we could have gone with, we just had to get it there via ship. Refiners can't just flip feedstock, it isn't that easy.

The figures might be a bit dated but if anything the diff has been bigger in recent times than when this article was written

https://financialpost.com/commoditie...ays-scotiabank

Selling to a single buyer, as happens to most exported Canadian crudes, puts you at the mercy of the buyer. Our current landlocked status ensures the power of the buyer and they have about 15 billion reasons to keep it that way.

So what could we do with an extra 15 bill in our jeans? Just to hedge the bets use 10 bill, it's still a sh*tload. That cash would end up in the local economy either as income or taxes or both.

Free post-secondary schooling? No provincial debt or deficit? A pile more hospitals? A winning hockey team in Calgary (some things money can't buy)

If only there was some sort of line of pipes (perhaps a pipeline?) that could be used to get oil into a ship or the wherewithal to want it...if only