This article exists as part of the online archive for HuffPost Canada, which closed in 2021.

(Nearly) Free Oil, Anyone? Oilsands Product Sells At Bargain-Basement $16 A Barrel

Canadian oil prices basically crashed this week.
Steam rises from the Syncrude Canada Ltd. upgrader plant in the Athabasca oilsands near Fort McMurray, Alta., Mon. Sept. 10, 2018. Canadian oil is selling at the largest discount to global oil prices ever.
Bloomberg via Getty Images
Steam rises from the Syncrude Canada Ltd. upgrader plant in the Athabasca oilsands near Fort McMurray, Alta., Mon. Sept. 10, 2018. Canadian oil is selling at the largest discount to global oil prices ever.

Canadian oil can't get to the world, and the world won't pay for what it can't have. The result? Canadian crude was trading at a 77-per-cent discount to benchmark North American oil at the end of this week.

Prices have fallen for much of the past two weeks, with Western Canadian Select (WCS) the benchmark price for product from the oilsands dropping to US$16 a barrel on Friday. That pretty much ties for the lowest prices in records going back to 2009, and it's down nearly 37 per cent since its close on Monday.

Global oil prices as of Oct. 12.
HuffPost Canada
Global oil prices as of Oct. 12.

By comparison, West Texas Intermediate (WTI) the benchmark price for North American oil was trading at US$71.50 on Friday, down about 3.8 per cent since Monday. The global benchmark, Brent crude, was trading at US$80.60, down 3.9 per cent.

The weakness in markets this week was part of the reason for the slide, but the real problem is the inability of Canadian oil producers to get their product to market, Bank of Montreal senior economist Sal Guatieri wrote in a client note.

Earlier on HuffPost: Trudeau says he's determined to get pipeline built (story continues below)

"Blame the lack of pipeline capacity to export oil and, to a lesser extent, outages at some refineries, resulting in a glut," he wrote in a client note.

"Suffice it to say that the low prices are a negative for Canada's trade balance, economy and the loonie."

Canada's industry is simply pumping too much oil, economists at National Bank of Canada wrote.

"Canadian producers are being forced to accept discounted WCS prices largely because of bloated inventories," wrote Krishen Rangasamy and Marc Pinsonneault.

"Unless transportation capacity increases in the coming months, Albertan oil producers may want to pare back output to allow inventories to be absorbed."

But they noted that cutting production would only bring the discount on Canadian oil to "more normal levels." Without new infrastructure to carry oil to markets, Canadian crude's status as the world's bargain-basement oil is set to continue.

Suggest a correction
This article exists as part of the online archive for HuffPost Canada. Certain site features have been disabled. If you have questions or concerns, please check our FAQ or contact support@huffpost.com.