Moneyloop wrote: After months of being sub-US$13 a barrel, the WCS discount to WTI rose to the upper teens again this week, returning to levels not seen since last November.
The Canadian heavy oil discount has seen much volatility in recent years, driven mostly by pipeline constraints. However, this time, prices are being affected by the Biden Administration, who have chosen to release mostly sour crude stockpiles from U.S. Strategic Petroleum Reserves (SPR), in an attempt to temper gas prices at the pump.
TIMELINE
Last November, the Department of Energy (DOE) announced the sale of 50 million barrels of crude oil from its SPR. Those barrels were mostly medium-grade sour crude, with an API density of about 32°. The release was part of a global initiative to lower oil prices and ease inflationary pressures.
The U.S. West Texas benchmark was just over US$80 a barrel at the time. The WCS discount rose to almost US$20 a barrel in Alberta (blue line), and about US$9 in Houston (red line). But this effect was temporary, as differentials returned to more normal levels in the new year.
But oil prices kept climbing, topping US$100 a barrel at the beginning of March, after Russia's invasion of Ukraine.
Another 120 million barrels of SPR releases were announced globally in April, which, once again, had no effect on oil prices. To put this number into context, the world consumes about 100 million bbl/day, and the U.S. accounts for one-fifth of those barrels.
While SPR releases have little or no affect on oil prices, they have been adversely influencing heavy oil differentials to light oils. At the end of May, the DOE announced the sale of an additional 40 million barrels of sour crude, to be delivered in July and August.
As observed last November, the heavy oil discount is once again slowly creeping higher, as it faces more competition from sour SPR barrels in the U.S. Gulf Coast.
PUTTING THOSE NUMBERS INTO CONTEXT
While a US$20 discount is not insignificant, it remains relatively narrow on a percentage basis. WTI closed Thursday (Jun 2) at about US$117 a barrel, a level not since 2008. WCS is now trading at a mere 16% discount to the WTI benchmark (in Cushing, OK), which is low by historical standards.
It remains to be seen how long this effect will last, and how many more barrels will be released from the U.S. SPR.
After touching a high of 726 million barrels in 2010, SPR volumes were reported at 526 million barrels at the end of May. The Biden Administration has pledged to sell a total of 180 million barrels this year, and most of those barrels have yet to be released.