* Nov synthetic trades at $10.50/bbl below WTI
* Surging production weighing heavily on synthetic prices
* Nov WCS trades at $29.25/bbl below WTI
CALGARY, Alberta, Oct 16 (Reuters) - Prices for light synthetic crude from the oil sands recently slid to the steepest discount in 18 months versus the U.S. crude benchmark, and is expected to stay relatively cheap due to Canada’s surging production and congested pipelines.
Some Canadian crude market players said discounts could become the new norm for synthetic grades, which traditionally had traded around parity with West Texas Intermediate.
Earlier this month light synthetic crude from the oil sands for November delivery traded around $12.50 per barrel below WTI, the widest differential since the first quarter of 2012.
It was last trading at $10.50 per barrel below the benchmark, according to Shorcan Energy brokers, well below the year-to-date average of a $2.34 per barrel premium.
“Too much production, not enough pipelines,” was how one crude trader summed up the bearish outlook.
Production at the Syncrude oil sands project in northern Alberta is ramping up rapidly after maintenance on a coker cut volumes over the summer.
The project produced 291,000 barrels a day in September, up 39 percent on the month, and talk among traders in Canada’s oil capital Calgary is that it could hit around 340,000 bpd in October, close to record levels.
At the same time, pipeline company Enbridge Inc rationed space on four crude lines on its export network in October, a move traders said pushed Western Canadian inventory levels back towards their maximum.
“Synthetic has been quite volatile over the last two years, largely on the back of pipeline constraints,” said David Boukhout, senior commodity strategist at TD Securities.
“Looking out further into our forecasts we do expect we are going to see prices average below WTI throughout 2014.”
That view was echoed by analysts at FirstEnergy Capital in Calgary. While they expect prices to strengthen slightly as refinery maintenance season draws to a close and pipeline rationing lessens, they forecast a discount of $1 to $2 per barrel on synthetic crude for much of next year.
The Syncrude Project is a joint venture of Canadian Oil Sands, Imperial Oil Ltd, Mocal Energy, Murphy Oil Corp , Nexen Inc, Sinopec Corp, and Suncor Energy Inc.
Concerns about shrinking returns from producing light synthetic crude were cited as part of the reason why Suncor, Canada’s largest oil company, scrapped its partially-built Voyager upgrading plant in northern Alberta earlier this year.
In recent years Canadian heavy crude prices have tended to suffer more than synthetic grades in winter months as asphalt production drops off and refinery demand weakens.
Last winter Western Canada Select heavy blend traded around $40 per barrel below WTI, eating into producers’ profits and prompting Alberta politicians to coin the term “bitumen bubble”.
But although WCS touched lows around $33 per barrel below the benchmark earlier this month, and was last trading at $29.25 per barrel below WTI, relief is in sight. It is expected to rally once BP Plc completes a revamp of its 405,000 bpd Whiting, Indiana, refinery.
The $4-billion project has been beset with delays, prompting one trader to label it a “white whale”, but once complete the refinery will more run heavy Canadian grades and less light.
“There are changing dynamics in how light and heavy are going to get taken up by the market,” said Martin King, analyst at FirstEnergy Capital.