Bloomberg News

Canadian Heavy Crude Strengthens as Seasonal Decline Overdone

October 07, 2013

Canadian heavy crude strengthened for the first time in four days on speculation that declines caused by a seasonal softening in demand were overdone.

Western Canadian Select for November delivery rose 75 cents to $32.75 a barrel below U.S. benchmark West Texas Intermediate oil, according to Calgary oil broker Net Energy Inc.

WCS, a blend of oil-sands bitumen and diluent, has weakened by more than $10 a barrel from Sept. 10 through Oct. 4 as U.S. refineries cut back output for seasonal maintenance and supplies of heavy oil increase, according to data compiled by Bloomberg. Refineries in PADD 2, or the U.S. Midwest, scaled back operations by 3.9 percentage points to 89.8 percent of capacity this month, U.S. Energy Information Administration data show.

“It’s a seasonal trend, you’ve got PADD 2 refining capacity coming off with the fall,” said Christopher MacCulloch, an analyst with Desjardins Securities Inc.

MacCulloch said the increase in oil-by-rail traffic, which allows more heavy barrels from Canada to get to refineries on the Gulf Coast, would help to prevent further weakening in the WCS spread this year.

“With so much rail moving heavy volumes there’s more of a floor on differentials than there used to be,” he said in a telephone interview from Calgary. “I don’t think it will get down to the $40 to $42 levels it reached back in December and January.”

Record Discount

WCS reached a record discount of $42.50 a barrel on Dec. 14 last year as growing production from Alberta filled up export pipelines, causing a bottleneck.

Canadian oil-sands production is forecast to continue growing this year, by 10.5 percent to 1.99 million barrels a day, a June forecast by the Canadian Association of Petroleum Producers showed.

Rail transport has taken some of the pressure off of Canada’s constrained pipeline system. Exports by train of oil from Western Canada were estimated at 175,000 barrels a day in September, more than double the volume a year earlier, according to an August report by Calgary investment bank Peters & Co.

Conventional heavy oil also strengthened on the spot market, rising $1 a barrel to a $36 discount, Net Energy said. Syncrude, a light oil processed from oil-sands bitumen, was unchanged at a $13 discount as of 2:30 p.m. New York time.

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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