July 24, 2015 / 10:22 PM / in 2 years

Canadian crude prices already at $30 face more downward pressure

HOUSTON (Reuters) - Canadian crude prices have dropped to $30 a barrel and face further downward pressure as refineries shut for maintenance, cutting demand.

An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014. REUTERS/Todd Korol

Outright WCS prices are trading at just above $30 a barrel, based on Shorcan differentials and NYMEX WTI, having touched a six-year low of just below $30 a barrel for one day in March.

The WCS discount to U.S. crude CLc1 tumbled in July after several months during which the heavy blend maintained $7-a-barrel to $10-a-barrel discounts to U.S. crude.

WCS for August delivery traded at $17.25 a barrel under the U.S. crude benchmark Thursday, in the weakest differential this year, according to Shorcan Energy Brokers. U.S. crude settled at $48.14, down 31 cents, its lowest close since March 31. [O/R]

The drop in outright prices is expected to drag on the results of Western Canadian producers ranging from Suncor Energy Inc SU.TO to mid-tier companies and their suppliers. The Toronto Stock Exchange’s benchmark energy index hit a fresh 2015 low on Friday .SPTTEN

The low price is also expected to deter producers from pursuing major expansions and new projects in the Alberta oil sands.

The discount came as Imperial Oil’s IMO.TO Kearl oil sands expansion in Alberta ramped up and other output returned after being held by wildfires in northern Alberta in mid-June, according to traders.

Some of the output was without a conduit to market, as Husky Energy Inc HSE.TO in early July shut down its 80,000 barrels per day upgrader in Saskatchewan for up to eight weeks of unplanned work.

A pair of U.S. refineries that run Canadian crude also had temporary unit shutdowns, further reducing demand, and more maintenance is coming.

Midwest refiners in April imported nearly seven-fold the amount of Canadian crude compared with U.S. Gulf Coast refiners, according to U.S. Energy Information Administration data. Heavy maintenance in the region could further pressure Canadian crude.

“With planned outages on the U.S. downstream side, this could be something where it gets pretty bumpy,” said Chris Feltin, an analyst with Macquarie in Canada.

Another factor, traders said, is the delay to 2016 of the startup of Enbridge Inc’s ENB.TO newly reversed Line 9 pipeline to carry Western Canadian oil from Ontario to Montreal.

Still, Feltin said he does not expect Canadian producers to cut output.

“We tend not to see these projects slow down in the oilsands region,” he said. “It’s pretty tough to stop and start operations like that.”

Additional reporting by Catherine Ngai in New York; Editing by Grant McCool

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