Heavy barrels hit widest discount in four years

CALGARY: The discount on Canadian heavy crude slumped to its deepest level in four years on Tuesday, hurt by export pipeline outages and high storage inventories in western Canada.

Western Canada Select heavy blend crude for January delivery in Hardisty, Alberta, weakened to $26.50 per barrel below the West Texas Intermediate benchmark, according to Shorcan Energy brokers, accelerating losses sustained over the last week. On Monday WCS settled at $23 per barrel below WTI.

The discount on heavy barrels is the widest since December 2013 and a blow to Canadian producers who had been enjoying a recent rally in US crude that is trading within sight of its highest level in two years.

The blow-out in differentials put the outright price of WCS crude at just under $31 a barrel.

Pipeline company Enbridge Inc said on Monday there would be extra rationing of space in December on its Mainline network, which transports the bulk of Canadian crude exports to the United States, because of unplanned outages in the western part of its heavy and light pipeline system.

Pipeline apportionment drives Canadian crude prices lower because it leads to a glut of crude building up in Alberta. Storage inventories in the oil sands province are already high after a nearly two-week shutdown of TransCanada Corp's Keystone pipeline in November because of a spill in rural South Dakota.

The 590,000-bpd Keystone pipeline is running with pressure reduced by 20 percent on the orders of US regulators investigating the South Dakota leak, and TransCanada has not said when that restriction is likely to be lifted.

One Calgary-based crude trader said it was likely some market players were also hitting position limits after the steep falls over the last week, and being forced to sell barrels to contain losses.

Light synthetic crude from the oil sands also fell sharply on the pipeline congestion, which comes as supply from an 80,000-bpd expansion at Canadian Natural Resources Ltd's Horizon oil sands project ramps up.

Synthetic crude for January delivery traded at $3.00 per barrel below WTI, down from Friday's settle of $2.30 per barrel below the benchmark.