Last week’s crude rally lifted benchmarks to multi-month highs, but left Canadian heavy barrels struggling to stay afloat. As discussed in this week’s Tradeview Report, amidst the close of the November trade cycle and continued geopolitical tensions, prompt Brent skyrocketed more than 6% week-over-week to settle at $116.72/bbl Friday, its highest settlement since late April, while December WTI ended Friday at $103.27/bbl, the highest end-of-week close since May.
In contrast, Canadian heavy crude found little comfort in a rising oil market. Growing oil sands supply and exceptionally expensive freight have weakened Canadian barrels’ competitive position, forcing sellers to offer deeper discounts even as global crude prices climbed. For the week ended October 23, the differential of Western Canadian Select delivered to the Gulf Coast (WCS US Gulf or red line in chart below) widened 18% to a steep ($22.28)/bbl discount below the NYMEX-CME Calendar Month Average (CMA), dropping to its weakest differential since October 2022. Additionally, Access Western Blend (AWB) at the Gulf Coast (green line) and Cold Lake at Patoka (blue line) plummeted to ($24.50)/bbl and ($24.85)/bbl below CMA, respectively, the lowest differentials since RBN’s records began in 2018.
For context, CMA stands for Calendar Month Average, representing the average of the daily front-month NYMEX WTI settlement prices over a calendar month. CMA is used as it is an accurate indication of WTI NYMEX pricing during the period when the physical crude is delivered.
Those discounts, however, can create opportunities for buyers with flexibility in their crude slates. Canadian heavy barrels can be blended with lighter crudes, including U.S. light sweet, to produce a feedstock with intermediate density and sulfur characteristics suited to a refinery’s configuration. Combining discounted heavy crude with lighter barrels can lower feedstock acquisition costs and provide an alternative to purchasing medium grades outright. The economics depend on the blend’s full assay, compatibility and processing requirements; matching density alone does not make two feedstocks interchangeable. That gives Canadian heavy another potential avenue to compete, particularly as some domestic sour grades command stronger premiums. Wider discounts can improve its value both as a standalone feedstock for complex refiners and as a component in a tailored crude blend helping cushion softer product margins.
