Canadian heavy crude slips as pipeline rationing set to rise

By Robert Tuttle on 2/20/2019

CALGARY (Bloomberg) -- Heavy Canadian crude prices widened to the biggest discount against New York futures this year as pipeline-operator Enbridge reported that rationing on its heavy oil lines would increase next month. 

Western Canadian Select, an oil sands benchmark, traded at $15/bbl below West Texas Intermediate futures Tuesday, $1.50 wider than on Friday and the biggest discount this year, according to data compiled by Bloomberg.

The discount widened as Enbridge said that crude shipments through the heavy oil pipelines of its Mainline, which is the largest Canadian oil export pipeline system, would be apportioned 41% in March, up from 39% in February. The system carries oil from Alberta to Superior, Wisconsin, where it connects to other lines linked to refineries in the U.S. Gulf Coast.

Pipeline rationing on the system has barely budged since the provincial government announced mandatory production curtailments totaling 325,000 bpd in January and February, which were later reduced.

Canadian heavy oil prices surged after the cuts were announced, with WCS’s discount to futures shrinking to less than $7/bbl last month. The price surge made shipping the crude by rail cars, a more expensive alternative to pipelines, uneconomical and shipments on trains declined. Shipping full train of crude can cost between $15 and $20/bbl.

On Tuesday, Alberta Premier Rachel Notley announced government plans to lease rail cars that will ship 120,000 bpd by next year. She said her government anticipates that the Canadian crude discount “will get back to rail economics very soon” after curtailments were reduced.

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