Bloomberg News

Western Canada Select Crude Strengthens for First Time in Week

January 08, 2013

Canadian heavy crude strengthened for the first time in a week, rebounding after a selloff early this year provoked by concern that growing production in western Canada would overwhelm pipeline capacity.

Western Canada Select, a heavy blend mainly produced from oil-sands bitumen, rose $1.60 a barrel to $36.25 below U.S. benchmark West Texas Intermediate, according to Net Energy Inc., a Calgary oil broker.

The discounted price of WCS has grown from $30.50 below WTI on the first day of trading this year, according to data compiled by Bloomberg. Concern about limited pipeline space out of Alberta has kept the price of the grade under pressure.

Several pipelines carrying Canadian crude to the U.S. are full, including parts of Canada’s largest export system, Enbridge Inc. (ENB)’s 2.5 million-barrel-a-day mainline.

Enbridge’s Lines 6A and 62 are overbooked by 10 percent this month, and demand on Line 5 is 12 percent above capacity, according to a company statement. Lines 6A and 62 can carry up to 739,000 barrels a day, and Line 5 can ship as much as 491,200 barrels a day, according to Enbridge’s website.

A new heavy-oil project, Imperial Oil Ltd. (IMO)’s 110,000- barrel-a-day Kearl mine in Alberta, is expected to begin production early this year, meaning more supply will have to travel through limited pipeline space.

Canada Exports

Canada exported 2.3 million barrels of oil a day during the third quarter of 2012, up 4.5 percent from the same period a year earlier, according to the National Energy Board.

Crude oils produced in another region suffering from limited pipeline capacity, western Texas, weakened. West Texas Sour declined $1.30 a barrel to a $17.50 discount, while West Texas Intermediate oil delivered in Midland, Texas, slid 75 cents to $12.75 a barrel below the same grade priced at the U.S. oil supply hub in Cushing, Oklahoma.

A glut of supply from shale oil production has overwhelmed pipeline capacity out of western Texas, causing crude prices there to fall rapidly on any disruptions to local demand. On Nov. 20, WTI Midland fell to $20 below Cushing.

Offshore Gulf of Mexico crudes strengthened as the spread between WTI and Brent, the global overseas oil benchmark, widened by 62 cents to $18.83 a barrel at 4:42 p.m. New York time. As Brent’s premium increases, the price of offshore crudes that compete with overseas imports also tends to rise.

Light Louisiana Sweet gained 25 cents and Heavy Louisiana Sweet gained 30 cents to trade at $17.85 a barrel each over WTI in Cushing. Mars Blend gained 45 cents to a $13.40 premium.

To contact the reporter on this story: Edward Welsch in Calgary at ewelsch1@bloomberg.net

To contact the editor responsible for this story: Dan Stets at dstets@bloomberg.net


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