December 13, 2017 / 10:45 PM / a month ago

Heavy crude slumps to deepest discount in four years

CALGARY, Alberta (Reuters) - Canadian heavy crude extended losses on Wednesday, with the discount hitting a four-year low as pipeline constraints left a glut of crude building up in Alberta.

Western Canada Select heavy blend crude for January delivery was trading at nearly half the price of U.S. benchmark West Texas Intermediate, cutting into revenues for Canadian producers.

WCS for delivery in Hardisty, Alberta, traded at $26.85 per barrel below WTI, according to Shorcan Energy brokers, the deepest discount since December 2013. On Tuesday WCS settled at $26.65 a barrel below the U.S. benchmark.

The widening discount put the outright price of Canadian heavy crude below $30 a barrel as WTI also dipped. [O/R]

Canadian producers had been enjoying a rally in global crude prices but the blow-out in WCS differentials wipes out those gains.

Storage inventory levels in western Canada are running high after a nearly two-week shut down in November of TransCanada Corp’s 590,000 barrel-per-day Keystone pipeline because of a leak in rural South Dakota.

Keystone has restarted with a 20 percent pressure restriction, meaning the backlog of barrels in Alberta will take longer to clear.

Meanwhile, rival pipeline company Enbridge Inc said on Monday there will be extra rationing of space on its Mainline system in December because of unplanned outages in the western part of its heavy and light pipeline network.

Producers are increasingly having to rely on rail to get their crude to market, BMO Capital Markets analyst Randy Ollenberger said in a note to clients, which is more expensive but necessary as growing oil sands production outpaces export pipeline capacity.

“We view the current weakness as temporary; however, we do expect light-heavy oil differentials to increase steadily through 2019 due to increased reliance on rail,” Ollenberger wrote.

Light synthetic crude from the oil sands edged higher but remained in sight of its weakest level since November 2016 as a result of pipeline congestion, which comes as supply from an 80,000-bpd expansion at Canadian Natural Resources Ltd’s Horizon oil sands project ramps up.

Synthetic crude for January delivery traded at $2.90 per barrel below WTI, tightening from Tuesday’s settle of $3.05 per barrel below the benchmark.

Reporting by Nia Williams; editing by Grant McCool

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