Canada’s Crude Problem: Lots of Oil With Nowhere to Go

Trapped in the country, Canadian oil has never been cheaper compared with U.S. prices



Canada, the world’s fourth-largest producer of crude oil, missed out on a recent global recovery in energy prices, and is now taking it on the chin as prices fall.

Crude prices in Canada briefly dropped below $16 a barrel on Friday, after a U.S. federal judge blocked construction of a key pipeline needed to transport oil from Alberta to Nebraska.

That means Canadian crude is going for a fraction of supplies elsewhere, even as U.S. prices have tumbled 21% from last month’s highs to about $60 a barrel. In October, Canadian crude traded at its largest-ever discount to U.S. oil of more than $51, according to S&P Global Platts.

Crude ConundrumCanadian oil prices have fallen below $20 abarrel even as global prices reached multi-year highs. Western Canadian SelectSource: S&P Global Platts.a barrelDec. ’16Oct. ’17Aug. ’1801020304050$60

Because of the steep discount, Canadian producers are leaving 40 million Canadian dollars, or $30.65 million, a day on the table, according to an estimate from Alberta’s finance department. Energy accounts for nearly 11% of the country’s nominal GDP, according to government figures.

Earlier this year, higher demand for fuel, coupled with lower production from major exporters, pushed oil prices to four-year highs. U.S. oil prices rose to $76 in early October, while Brent, the global benchmark, briefly surpassed $86.

But congested pipelines and rails have prevented Canada from getting its oil to market, and analysts say storage facilities in Edmonton and Hardisty, Alberta, are brimming over with barrels.

“At $85 Brent, it certainly didn’t feel like a bull market in Calgary,” said Matt Murphy, an associate at Tudor, Pickering, Holt & Co. in Canada.

The Canadian market was dealt a fresh blow Thursday, when a federal judge ruled that TransCanada Corp. couldn’t advance its Keystone XL pipeline without a supplemental environmental review. Completed, the pipeline would carry up to 830,000 barrels a day to Nebraska, where it could then be carried to the Gulf Coast.

A TransCanada spokesman said the company is reviewing Thursday’s ruling and reiterated the company’s support for the project.

Meanwhile, Canada is producing more oil than ever. According to the International Energy Agency, Canadian production climbed to a record 5.3 million barrels a day in August.

Many producers ramped up crude output as prices rose, only to find that the infrastructure needed to move it couldn’t keep up.

“If everybody grows, then everybody needs a new pipeline,” said Rusty Braziel, a former trader and principal consultant at RBN Energy LLC. “Growth has just come on so much more quickly than most people were predicting.”

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