Western Canada’s heavy oil producers have become all too familiar with fluctuating and often very wide price discounts for their product. Too often, the culprits have been insufficient pipeline export capacity and/or rapidly rising production. It might be easy to quickly dismiss the latest widening of the heavy oil price discount as being related to these well-known factors, but it turns out that other more international trends are at work, ranging from U.S. government-backed competition in the Gulf Coast to heavy discounting of competing barrels in other far-flung regions of the world. In today’s RBN blog, we look beyond the borders of Canada for an explanation of the latest pressures driving wider Canadian heavy oil price discounts.
With a large majority of Canada’s crude export volumes to the U.S. being in the form of heavy oil, it is only natural for the industry to track the relative price of those barrels versus major price benchmarks such as West Texas Intermediate (WTI). The most closely watched Canadian heavy oil price marker is Western Canadian Select (WCS) and its price differential to WTI, which often yields clues on the degree to which market forces are discounting WCS barrels.
Canadian crude output is rising, requiring new export routes. As traditional pathways face constraints, the U.S. Rockies—especially the Guernsey, WY hub—are emerging as key corridors for moving Canadian heavy crude to downstream markets, including the Gulf Coast.
Simply put, when the supply of WCS is greater than the market desires, it will be more discounted relative to WTI, and when the supply of WCS is less than what the market wants, it will be less discounted relative to WTI. Aside from the amount of heavy oil production, numerous other factors such as inventory levels, pipeline constraints and refinery availability play a role in determining the level of the price discount. (Some discounting of WCS is normal to cover quality differences and transportation costs.) With more than 2.5 MMb/d of heavy oil exported to the U.S., a deeper discount for WCS can quickly add up to many millions of dollars per day of lost revenue for Canadian producers.
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About the song
“I Go to Extremes” was written by Billy Joel and appears as the fourth song on side one of Billy Joel’s 11th studio album, Storm Front. It was released as the second single from the album in November 1989, and went to #4 on the Billboard Adult Contemporary chart and #6 on the Billboard Hot 100 Singles chart. According to Joel, the song was written as an apology to Christie Brinkley, his wife at that time, for his lifestyle. Personnel on the record were: Billy Joel (vocals, acoustic piano, Hammond organ), Jeff Jacobs (synthesizer), David Brown (guitar), Schuyler Deale (bass), and Liberty DeVito (drums).
Storm Front was recorded in 1988-89 at The Hit Factory, The Power Station and Right Track Recording in New York City and The Warehouse Studio in Vancouver, BC, with production by Billy Joel and Mick Jones. It was released in October 1989 and went to #1 on the Billboard 200 Albums chart. The album has been certified 4x Platinum by the Recording Industry Association of America and was nominated for five Grammy Awards. Seven singles were released from the LP.
Billy Joel is an American singer, songwriter, pianist, and record producer. Joel was a member of two short-lived bands, The Hassles and Attila, before signing his first record deal as a solo artist in 1971. He has released 13 studio albums, six live albums, 18 compilation albums and 61 singles and has sold more than 160 million records worldwide. Joel has won five Grammy Awards, was inducted into the Rock and Roll Hall of Fame in 1999 and received Kennedy Center Honors in 2013. He has a star on the Hollywood Walk of Fame and holds honorary doctorate degrees from seven different universities. He continues to record and tour.
