Canada heavy crude prices slump below $20, lowest in over a decade
By Nia Williams
CALGARY, Alberta (Reuters) - Benchmark Canadian heavy crude prices crashed below $20 a barrel on Wednesday, the lowest in at least a decade, piling more woe on one of the world's highest-cost oil patches and driving much of the sector deeper into the red.
With variable cash costs at some of the largest of Alberta's vast oil sands operations estimated at above $40 a barrel, the 14 percent plunge in outright Canadian heavy prices this week may finally force some weaker players to consider shutting down operations rather than racking up losses on every barrel they extract, analysts said.
On Wednesday, U.S. crude futures CLc1 slid nearly 6 percent to as low as $33.77 after data showed the biggest weekly build in gasoline stocks since 1993.
Western Canada Select (WCS) heavy blend crude for February SHRWCSMc2 delivery traded at a discount to WTI of around $14.05, according to Shorcan Energy brokers, putting the absolute price of the Canadian oil sands benchmark blend as low as $19.72 a barrel. It had averaged $23.57 in December.
The sharp price slump was the latest bad news for oil sands operators who have watched the price of their crude, among the world's cheapest because of its difficult-to-refine density and high cost of transportation to the main U.S. buyers, plummet from more than $85 a barrel in 2014.
"This is a very, very harsh reality for heavy oil producers," said Judith Dwarkin, chief economist at RS Energy Group in Calgary. "They are - as they spent most of last year doing - trying to survive by cutting costs, increasing production to generate cash flow and borrowing if they can."
Northern Alberta's vast oil sands hold the world's third-largest crude reserves but carry some of the highest production costs globally due to energy-intensive production.
Most companies will likely keep producing even if the crude price does not cover cash operating costs, cushioned in small part by the Canadian dollar's fall to a 12-year low versus the U.S. greenback. The companies sell their crude in U.S. dollars but pay costs in loonies. [CAD/] Continued...