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Price gap between Canadian crude, U.S. oil could shrink in 2018, Deloitte says

Price gap between Canadian crude, U.S. oil could shrink in 2018, Deloitte says

OTTAWA: Bottlenecks into the U.S. market are still exacerbating the price gap between Canadian oil and West Texas Intermediate (WTI), even as strong global demand is expected to elevate overall crude prices in 2018, according to a forecast released Thursday by Deloitte.

But Deloitte’s Resource Evaluation and Advisory (REA) group is optimistic that demand for heavy Alberta crude will rise as similar-quality imports from Mexico and Venezuela decline.

Assuming Canada can boost its market share and get more access to U.S. heavy oil refining capacity, the price differential between Western Canadian Select (WCS) and WTI prices will likely shrink, the report says.

“If the Canadian sector is going to see continued growth, I think that’s going to take more international exports,” said Andrew Botteril, a partner with the REA group.

Deloitte also notes that OPEC members seem set to extend their current production cuts throughout the year, which is also cause for optimism in the Canadian energy sector.

“Over the last quarter, crude oil prices rose on news of continued compliance by OPEC participating nations,” the report says.

Deloitte forecasts WTI to be $55 US per barrel in 2018 and Western Canadian Select (WCS) to be $46.40 Cdn per barrel in 2018.

On the natural gas side, Deloitte says the price volatility seen in 2017 could continue in 2018, partly due to planned maintenance projects on gas transportation infrastructure, but also because U.S. natural gas production through both shale gas plays and solution gas from tight oil fields is expected to increase.

“Natural gas export volumes from Canada to the U.S. were flat in 2017, demonstrating that the U.S. does not require additional volumes from Canada to meet domestic demand,” the report says.

Deloitte has forecast AECO — the Alberta gas trading price — to be $2 Cdn/Mcf (one thousand cubic feet) in 2018 on average.