The price of Canadian heavy crude is currently taking a beating in the absence of adequate pipeline access and refinery maintenance, closing at nearly $50 less than the U.S. light benchmark on Friday.
Further downward pressure is on the horizon for Canadian crude as new global regulations come into place for sulphur in marine fuels.
In January 2020 new rules will come into effect from the International Maritime Organization (IMO) requiring a a sevenfold reduction in allowable sulphur levels in marine/bunker fuels. This will make heavy sour crudes like Canada’s Western Canada Select less attractive, says Sproule vice-president Christoffer Mylde.
Only about 400 out of 50,000 vessels so far have ordered “scrubbers,” or exhaust cleaning systems to help them continuing to run higher sulphur fuels, he said.
Sproule has increased its forecast for the discount between WCS and WTI to average US$21 in 2019 and US$19.80 in 2020, up from US$17.16 and US$15.39, respectively, in September.
The differential has blown out in record proportions in recent days, largely in part due to a maintenance outage at BP’s Whiting Refinery in Indiana, the largest buyer of Canadian crude. Sproule expects that the discount will narrow significantly as crude by rail volumes pick up in the remainder of 2018, and as the Enbridge Line 3 Replacement Project, Keystone XL Pipeline and eventually Trans Mountain Expansion are completed.