The price of heavy crude oil increased this week. This was due to the continuing decline in production by Canadian oil producers and the increase in storage capacity, according to Tasnim News Agency.
The price of West Canadian oil, which is the Alberta oil sands index, was only $ 3.80 per barrel in June. It was lower than the West Texas Intermediate oil price for delivery this month.
The Alberta oil is of a lower quality than WTI. Besides, it is located further away from customers. It must be noted that Alberta’s access to markets impacts price discounts. The easier it is to move oil to refineries, the less the price discounts will be.
However, the price difference between Canada’s heavy oil and US crude has been the lowest since 2008.
There are two reasons Canadian crude oil costs so high this week. On the one hand, many Canadian oil producers have been declining in production continuously. On the other hand, Enbridge Inc, operating crude oil and petroleum pipeline systems, reported on the allocation of part of its pipeline for oil storage.
Due to meager oil prices and declining demand, the coronavirus outbreak has caused, Canadian oil companies to cut costs and production.
Husky Energy has cut its budget and production. Cenovus Energy has cut its capital spending by about 32 percent in 2020.
Suncor Energy and Canadian Natural Resources Limited have also cut costs. ConocoPhillips has reduced production in Surmont.
Analysts expect Canadian oil companies to cut production by about one million barrels a day in the coming months.
Enbridge plans to use its storage space to store surplus Canadian oil
US refineries purchase less oi to match lower demand. To help offset lower volumes in the system, Enbridge plans to use an idled leg of its Mainline pipeline system to store surplus Western Canadian oil.
According to the company, it will store 900,000 barrels of oil for eight months starting from June 1. The company has applied to the Canada Energy Regulator for authorization to use a portion of its Line 3 pipeline to store oil. Enbridge said the pipeline would temporarily store the commodity. Meanwhile, further optimizations in its storage tank program could increase storage capacity to around two million barrels by 2020.
Enbridge stated that the coronavirus pandemic and the collapse in oil prices raised the demand for crude petroleum storage. Storage demand throughout North America and even more urgently in Western Canada.
Trudeau has promised support for Alberta’s oil industry
While the coronavirus has hammered the Canadian oil industry, several Canadian oil and gas producers posted a profit last year in a time of depressed prices. Cenovus, for example, generated $2.2 billion in earnings in 2019. Jagmeet Singh, the leader of NDP, stated that the future lies in renewable energy. The country needs to have more investment in sustainable economies that lower emissions.
Justin Trudeau, Prime Minister of Canada, said at a 2017 energy conference in Houston that the resource of oil of Canada would be developed. They would ensure that it was done responsibly, safely, and sustainably. He repeated that commitment at a press conference this week.
- Trading Instrument