ALBERTA: Canada’s struggling oil market has found something of a lifeline as traders scramble for heavy crude due to Opec production cuts and sinking Latin American output. Output has fallen in Organization of the Petroleum Exporting Countries and non-Opec Latin American countries such as Mexico and Colombia, leading refiners as far away as China to look to Alberta’s oil sands to fill the gap. The interest has boosted the price for heavy Western Canada Select (WCS) oil, which is within range of its tightest discount to US crude ever.
Canadian heavy oil is an easy substitute for Middle Eastern and Latin American grades, and the rising demand represents a rare bright spot for the oil sands, which have been hit hard by falling prices and the high cost to produce and blend Alberta’s heavy, tar-like bitumen. “We’ve been seeing a structural change (in the market) since Opec cut medium sours, and Canadian heavy fits beautifully in there,” one trader at an oil sands company said. Opec is attempting to rebalance global markets by cutting sour crude output, keeping light sweet barrels flowing as US shale producers are pumping at record levels. Output in Venezuela, an Opec member, fell 11 percent in the first five months of the year to a 27-year-low due to underinvestment and infrastructure problems. And as political turmoil mounts there, the United States could impose sanctions that would hinder Venezuela’s ability to sell crude. Mexico’s production fell 8 percent in the first five months of 2017 from a year ago as a result of long-running natural production declines in aging oilfields. Colombia’s dropped 11.5 percent as a consequence of rebel attacks on pipelines.