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As on: Dec 17, 2018 12:39 PM
Market Speaks: Growth In Canadian crude Oil Output Outpaces Expansions In Pipeline Capacity
07-Dec-18   16:08 Hrs IST

Growth in Canadian crude oil production has outpaced expansions in pipeline takeaway capacity, dampening Canadian crude oil prices and increasing movement of Canadian crude oil exports by rail. The increase in production along with the costs associated with moving crude oil out of Canada by rail are reflected in the price spread between WCS in Hardisty, Alberta, and WTI in Cushing, Oklahoma. The crude oil spot price difference between WCS and WTI reached -$50.00 per barrel (b) on October 11, 2018, the largest difference in more than 10 years, and settled at -$33.25/b on November 28, 2018. The price spread narrowed recently because of the announcement by the Alberta government that it will implement crude oil production cuts in January 2019.

Between 2010 and 2017, most of the crude oil moved by rail in the United States came from the Midwest (Petroleum Administration for Defense District, or PADD 2), driven by production out of the Bakken region and the price differential between Brent and West Texas Intermediate (WTI) crude oils. Since 2017, however, crude oil imports by rail from Canada have increased and, in recent months, exceeded volumes originating from PADD 2. The recent increase in Canadian crude oil imports by rail is driven by growing Canadian production combined with pipeline constraints out of Canada.

The US Energy Information Administration (EIA), in its November Short-Term Energy Outlook (STEO), projects that total liquids production in Canada will increase to 5.2 million barrels per day (b/d) in 2018, up approximately 250,000 b/d from 2017. Because of the cancellation or delay of pipeline projects—some to the United States and others across Canada to its Atlantic and Pacific Coasts for export—volumes of Canadian crude oil exported to the United States by rail from January through September increased 67,000 b/d compared with the same time last year.

Of the 67,000 b/d January-through-September year-over-year increase in US imports of Canadian crude oil by rail in 2018, more than half (37,000 b/d) went to the US Gulf Coast (PADD 3). All parts of the United States, except the West Coast, have seen an increase in deliveries of Canadian crude oil by rail since the beginning of the year and trade press reports indicate this trend should continue through the fourth quarter of 2018

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