Canadian oil price volatility to linger -WoodMac

Wed Mar 27, 2013 12:08pm EDT
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* Several new oil sands projects profitable at $60 oil

* Export pipeline capacity tight over next few years

* Recent narrow heavy oil discounts to be short-lived

By Jeffrey Jones

CALGARY, Alberta, March 27 (Reuters) - A combination of surging production from low-cost Alberta bitumen projects and stubbornly tight export pipeline capacity will keep Canadian crude oil prices volatile for the rest of the decade, energy researcher Wood Mackenzie said on Wednesday.

The prediction comes as the Alberta and Canadian governments struggle to find solutions to the problem of deep discounts in prices for the country's heavy crude oil that have pressured public finances as well as corporate bottom lines.

In recent months the discount on Western Canada Select heavy oil has shrunk considerably, to less than $15 a barrel under West Texas Intermediate from more than $40 under in January, as Imperial Oil Ltd's Kearl oil sands project has been slow to start up and as inventories in Canada have dwindled.

However, Wood Mackenzie analyst Mark Oberstoetter said the improvement is likely to be short-lived as major new pipelines to move the crude are slow to be approved and built and production from the Bakken region of North Dakota in the United States also jumps, competing for current space to market.

Oberstoetter said almost three-quarters of an expected 540,000 barrels a day of new bitumen production expected to start up in the next two years will come from projects that are already sanctioned and have a break-even oil price of $60 a barrel.   Continued...