Crude discount seen continuing for Canadian producers – by Carrie Tait (Globe and Mail – December 18, 2012)

Globe and Mail is Canada’s national newspaper with the second largest broadsheet circulation in the country. It has enormous influence on Canada’s political and business elite.

CALGARY — The massive price discount energy companies producing oil in Canada receive for their crude will linger throughout 2013 even if the industry is able to build and expand pipeline networks in the United States, experts say, noting that the domestic economy’s potential is being held back.

A barrel of Western Canadian Select is worth $47.20 (U.S.) a barrel right now – a whopping $40 discount to the North American benchmark, known as West Texas intermediate (WTI). Further, the global benchmark, known as Brent crude, sits at $109.62 a barrel, giving it a gaping $62.42 advantage over much of the oil coming out of Western Canada.

Low prices for Canadian crude are caused by a traffic jam of oil in the U.S. Midwest. But even if relief valves are opened thanks to the Seaway pipeline expansion and construction of the southern leg of the Keystone XL pipeline, the glut will merely shift from the Midwest to the Gulf Coast, CIBC World Markets predicts.

Industry optimists long hoped that new pipelines would ease the gap between Canada’s heavy crude and WTI, making expansion in the oil sands more financially sound. Projects such as Seaway and the southern chunk of Keystone XL may get heavy oil to refining markets, but the recent light oil boom, centred in North Dakota, means excess oil will remain in North America.

Canada will lose billions of dollars in revenue per month, economists calculate, because of the price difference.

“The heavy side is a disaster right now,” said Andrew Potter, a CIBC analyst in Calgary. “There’s a view that these pipelines kind of save us and we’re going to see this miraculous contraction of the Brent-WTI [differential]. It certainly will get better, just not as good as a lot of people think.”

Canada loses as much as $2.5-billion in revenue each month when the difference between domestic oil and the international benchmark is around $50, according to Charles St-Arnaud, an economist at Nomura Securities International Inc.

“If it were not for the excessive spread, Canada’s trade balance would currently show a surplus of about $2.3-billion, instead of the current $0.2-billion,” he said in a note last week. “This implies to a revenue loss of about $30-billion a year, or about 1.6 per cent of GDP.”

For the rest of this article, please go to the Globe and Mail website: http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/crude-discount-seen-continuing-for-canadian-producers/article6500167/%3bjsessionid=1NlpQQnfkJJvtQy5vjrjcfDKnPLP9TGSq2CCxWsJc2k1T3BcDxG4!1274872054/?ord=1