CALGARY, Alberta (Reuters) - Canadian heavy crude differentials weakened to their widest level since late March on Friday, extending losses as ongoing refinery outages on the U.S. Gulf Coast following Hurricane Harvey slashed demand.
Around 4 million barrels per day of U.S. crude refining capacity was forced to shut down as a precaution against high winds and catastrophic flooding after Harvey made landfall last week.
While some refineries were restarting operations on Friday, analysts at Goldman Sachs warned some capacity could remain offline for months, weighing on demand for crude.
Canada ships around 400,000 barrels per day, or 14 percent of its total U.S. exports, to the Gulf Coast region, the world’s largest heavy crude refining market, and the loss of that demand weakened price differentials.
Western Canada Select (WCS) heavy blend crude for October delivery in Hardisty, Alberta, last traded at $13.10 per barrel below the West Texas Intermediate benchmark, according to Shorcan Energy brokers, having settled at $12.15 per barrel below WTI on Thursday.
The discount on Canadian heavy crude traded at or below $10 a barrel for much of the summer, and the sudden widening eats into netbacks for Canadian producers already struggling with persistently low global benchmark oil prices.
“If the 400,000 that Canada typically sends to the Gulf gets backed up, there’s simply no other buyer and WCS is going to widen further,” said RBC Capital Markets analyst Michael Tran. “This is another example of the importance of diversification of Canada’s customer base.”
Canada sends the vast majority of its crude exports to the United States. Proposals to build new or expanded pipelines to the east and west coasts, where crude would be loaded onto tankers for shipping overseas, have run into delays due to fierce environmental opposition.
Light synthetic crude from the oil sands for October delivery strengthened to last trade at $1.70 a barrel over WTI, having settled at $1.30 per barrel over the benchmark on Thursday.
Heavy rains and flooding has also shut down some U.S. shale oil production, fanning demand for replacement light barrels and boosting prices in Canada.
Reporting by Nia Williams in Calgary, Alberta; Editing by Jonathan Oatis and Grant McCool