Canadian oil price differentials
As world stock markets plunge in response to the novel coronavirus pandemic, Albertans have their eye on the price of oil. Western Canadian Select prices. Graph: The Narwhal. Source: Alberta government. But as he pointed out, Albertan oil producers — already struggling with low prices and often high-cost products — are likely to suffer disproportionately.
Pipeline Capacity Rationing and Crude Oil Price Differentials: The Case of Western Canada
Recently, some types of oil have even traded at negative oil prices. With so much news flying around, we wanted to take a couple steps back and clear up a few basic questions. Why are oil prices so low? How can an oil price be negative?
That was back in December , according to data from the Government of Alberta. Western Canadian Select prices. Source: Alberta government. But the real price crunch is the result of a long-simmering price war. The basics tenets of supply and demand make it obvious that prices go up when supply is low.
So for years, major oil-producing countries like Saudi Arabia, a member of the Organization of the Petroleum Exporting Countries OPEC , and Russia, not a member, have been trying to agree to reduce supply i. But in March, that all changed. Prices plummeted as expected thanks, econ !
While Saudi Arabia and Russia have been trying to curtail supply to keep prices higher, the trouble is, not everyone has been on board with that strategy ahem , the United States.
Crude oil production in the U. Energy Information Administration. This meant Saudi Arabia and Russia were trying to curb their production while the U. That meant the supply was staying high — and the prices were staying low. It flooded the market, because even at a low oil price, the low cost of its production means it can still make money. So while Saudi Arabia is losing out compared to what it would have made had prices stayed high, it is still making money.
Alberta, on the other hand, is in a different boat. Oil from the oilsands costs more to produce and sells at a lower cost than much of its competition. Work is expected to slow down in the Alberta oilsands, due to a plunge in world oil prices. Photo: Alex MacLean. And in some areas, that could even mean the oil price could be negative. That was after another benchmark oil price, Wyoming Asphalt Sour, a type of oil blend used to make paving bitumen, was reportedly trading at cents U.
As CBC pointed out, Wyoming is not unlike Alberta — in that it is landlocked — leaving some to wonder if Western Canadian Select is also going to be pushed close to a valuation of zero … or less. Gasoline prices in Alberta have fallen to roughly half of what they were at this time a year ago, with some gas stations in the province reporting prices in the cent range, according to Gasbuddy. The stuff we put in our cars is very different from the thick molasses pulled out of the ground at an oilsands mine.
Refinery and transportation costs play a big role in gas prices, as do taxes. We can, however, likely expect to see gas prices stay low as the price of crude oil stays down. But too much oversupply around the world can mean storage options simply run out.
There are serious concerns right now this might already be happening. That means companies are thinking of creative ways to store their excess supply, including buying tankers to use as floating storage. And in the meantime, the cost to store oil on a supertanker has skyrocketed. But with so much excess supply and so little affordable storage, the only option for many producers is to sell their oil. That means even lower prices.
In other types of oilsands production that involve steam, there are added concerns that turning off production can hinder the ability of a well to produce oil in the future.
This is what has governments nervous — figuring out a way to prevent a total economic collapse, while taking into account the long-term challenges the industry already faces, including serious concerns about climate impacts.
Sharon is The Narwhal's Alberta-based investigative journalist. Her essays, interviews and long-form nonfiction have also been published by The Walrus,…. Wolves have long been a source of fascination for biologist Kevin Van Tighem, who grew up in southern Alberta in the s and s. Now, amid industry closures and On April 7, , Brian Cecil Parke ignited an enormous burn pile on his property People always tell us they love our newsletter.
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Subscribe Bronze Sign-up Member Login. Canadian oil producers are price takers, not price makers. But what to do when your main export is selling for less than half of global prices?
Recently, some types of oil have even traded at negative oil prices.
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How does Western Canadian Select oil pricing work?
Covid19 collapsed demand. The future of hundreds of thousands of Canadian jobs is at stake. The reality is much more complicated, according to NE2, a physical oil brokerage and derivatives exchange with operations in Calgary and Houston. NE2 says it handled deals involving about 38 per cent of western Canadian oil production in Trading for commodities such as crude oil operates based on contract prices, typically for delivery in a given month. The case of WCS is slightly more complicated: buyers agree to pay a price based on a discount to North American benchmark West Texas intermediate oil to account its for being farther from market and of lower quality.
Alberta’s record-low oil prices: what the coronavirus and a supply glut mean for the province
Canadian oil has been setting some records over the past few years but in all the wrong ways. And just recently another unwanted record was set for WCS. This discount is a disaster for Canada's economy and it's paramount that our country solve this problem as quickly as possible. WTI stands as one of the three primary benchmarks WTI, Brent, Dubai which are frequently used as a reference price for buyers and sellers of oil around the world. Some WTI streams are produced in landlocked regions of the United States which then are collected at facilities in Cushing, Oklahoma, while others are produced in states with access to the coastline. This oil is then shipped via pipeline to facilities along the U. Gulf Coast for refining, sale and transport to global markets. W ithout access to other markets, Canada really has no choice but to sell most of its oil at whatever price buyers in the U.
