Canada's differential dilemma

Wide discounts for Canadian oil lead to unilateral production cuts

Canadian oil producers are price takers, not price makers. But what to do when your main export is selling for less than half of global prices?

That was exactly the situation in November last year when the differential  or discount  for Western Canadian Select (WCS) widened to an all-time high of $46/bl to West Texas Intermediate (WTI) and prompted a crisis of confidence in the country's oil patch after nominal Canadian prices fell below $11/bl.

Given that fully 99% of exports go to the US, domestic producers are effectively subsidising American refiners to the tune of $2.4/bl per month  both figuratively and literally lining the pockets of US president Donald Trump's economic resurgence.

This in turn has led to what politicians and industry leaders north of the 49th parallel have dubbed a crisis with broader implications for the Canadian economy as a whole. In response, the Alberta government has taken the unprecedented step of imposing mandatory production cuts to the tune of 325,000bl/d or 7pc of the country's crude output.

Speaking in Edmonton, Alberta, state premier Rachel Notley tells Petroleum Economist the production curtailments are a temporary stopgap. They will continue until markets stabilise at a "normal" level that would support ....