Deep Canadian oil-price discounts expected to ease

Fri Jan 9, 2009 3:24pm EST
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Canadian oil production has been getting hit with deep discounts, even with benchmark crude prices slumping, as U.S. storage space fills up, refinery output slows and key export pipelines remain full.

At the end of December, Canada's marker light, sweet oil grade, Edmonton Light, fetched $10-$12 less per barrel than West Texas Intermediate, which itself has fallen more than $100 from record highs last summer.

This week, the discount eased to less than $3 a barrel, but companies will show the weakness in fourth-quarter price realizations.

The price moves, which one brokerage called "very strange and alarming," follow months of wide price spreads, called differentials, for heavy oil and bitumen from the oil sands.

Some issues pressuring prices are expected to dissipate in coming days, while others will linger, said Martin King, analyst at FirstEnergy Capital Corp.

"Some of the crude streams are already starting to normalize, and I think by the end of next week those will be kind of close to historic averages," King said. "But with Edmonton Light ... it's going to take a number of weeks to get back to something that looks a little more reasonable."

He pointed to several issues that have pressured prices for crude from Canada, which is the largest source of foreign supply for the United States.

Benchmark WTI fell 87 cents, or 2 percent, to $40.83 a barrel on Friday as a big jump in U.S. unemployment added to the economic gloom that has pressured oil prices for months.   Continued...