commitment

It’s a challenging time to be active in the crude oil market in Western Canada. Barrels are selling at a huge discount to domestic U.S. benchmarks, there is major uncertainty surrounding most new pipeline projects and crude-by-rail opportunities, and Alberta officials are unsure how long to maintain caps on production. As a result, the Canadian market is wildly volatile. It seems like a piece of the fundamentals equation changes on a weekly basis, which makes it next to impossible for producers, shippers, refiners — or anyone else really — to make long-term decisions and plan for the future. And now, the Enbridge Mainline pipeline system is asking folks to do just that: sign up for multi-year take-or-pay contracts on Western Canada’s biggest takeaway system, or risk leaving barrels stranded for who knows how long. Some market players aren’t buying in. In today’s blog, we recap the recent protests of Enbridge’s plan and examine what might be driving the decisions of Canada’s biggest oil companies.

Crude oil pipeline shippers across the U.S., and especially in the Permian, are about to experience something they haven’t seen in a few years: a bunch of new crude takeaway capacity with lower-cost tariffs coming online, and the sudden need among committed shippers to fill their pipe space. This also affects some folks committed to space on older pipelines, whose higher-cost tariffs could leave them out of the money. The start-up of pipelines like Plains All American’s Cactus II, with a super-low $1.05/bbl tariff — and several pipelines in other basins lowering tariffs — has traders with pipeline commitments old and new re-running their economics and trying to determine their best strategy moving forward. Some may be forced to move volume at a loss. Today, we analyze the recent trend in tariff compression and how traders deal with uneconomical take-or-pay contracts.