‘Heavy is the crude that wears the crown’. Photo credit: Suncor Energy
Demand for oil from Canada is rising as world oil consumption hits new records.
Heavy, sour oil grades like those Canada primarily exports are experiencing what one analyst calls a “price renaissance,” outperforming the U.S. light, sweet oil benchmark West Texas Intermediate (WTI).
“Heavy is the crude that wears the crown,” Toronto-based Rory Johnston, founder of Commodity Context, wrote recently.
“While the most commonly referenced light sweet crudes are on an uninspiring price run, heavier crudes are actually having a pretty great year. As just one example, the price of Western Canadian Select (WCS), a heavy sour crude that represents Canada’s main crude export blend, is up a whopping $15 per barrel (about 20 per cent) year-to-date.”
That’s compared to an increase of about US$5 per barrel for WTI this year.
There are several reasons for the higher Canadian heavy oil prices, says Phil Skolnick, New York-based oil market analyst with Eight Capital.
Maintenance at oil sands projects has reduced available supply while at the same time, demand has increased. The new Dos Bocas refinery in Mexico is drawing heavy oil away from refineries on the U.S. Gulf Coast, and petrochemical plants in China are ramping up production using heavy oil from both Canada and Latin America, Skolnick says.
Additional demand is expected when the U.S. government purchases sour crude to refill its Strategic Petroleum Reserve.
“Demand is increasing for sure,” he says.
Canada’s oil exports to customers outside of the United States reached a record 291,000 barrels per day this spring, according to the Canada Energy Regulator.
Meanwhile, American oil imports from Canada remain steady above 4.5 million barrels per day, according to the U.S. Energy Information Administration.
Even though it’s not a global benchmark like WTI, the improved pricing for heavy crudes like WCS is important because it has “a material impact” on the earnings of producing companies and nations, Johnston wrote.
Canada’s Parliamentary Budget Office has said that an increase of US$5 per barrel for Canadian heavy oil would add $6 billion to Canada’s economy over the course of one year.
With the Trans Mountain pipeline expansion now more than 80 per cent complete, Canada is closer to expanding its ability to supply growing oil demand in global markets, with the benefits flowing to Canadians.
This article was first published by the Canadian Energy Centre on Aug. 8, 2023.
