WCS Producers -- How Do They Do It? -- April 7, 2020 -- No New Wells Come Off NDIC Confidential List Today

Active rigs:

$26.91	4/7/2020	04/07/2019	04/07/2018	04/07/2017	04/07/2016
Active Rigs	37	62	58	49	31

Second day in a row, no new wells coming off the NDIC confidential list.

RBN Energy: will record-low WCS prices spur oil producers to reduce output? Without question, I've always found the WCS story absolutely fascinating. To paraphrase a great line in an episode of Columbo, "how do they do it?"

The crash in global crude oil markets has meant low prices for all producers, but no place more so than in Alberta’s oil sands.

Transportation, blending and quality differentials mean that benchmark Western Canadian Select (WCS) is priced at a significant discount to light, sweet West Texas Intermediate. With WTI prices seemingly stuck below $30/bbl, the absolute price of WCS last week tumbled to all-time lows below $5/bbl.

If they persist, will WCS prices south of $10/bbl generate wide-scale production shut-ins in the oil sands? Today, we continue our series on the challenges facing Alberta’s oil sands.

The collapse in heavy oil prices to record-low levels has presented a crisis for Alberta’s enormous oil sands industry unlike any it has ever seen before. This collapse is even worse than in late 2018, when price differentials for Alberta’s WCS benchmark blew out versus WTI in response to severe transportation constraints. So bad was the pricing for WCS 15-plus months ago that the Alberta provincial government intervened and mandated oil production curtailments to restrict supplies. This, combined with the increased use of crude-by-rail, eventually lifted WCS prices out of the cellar last year.

Over the same period, benchmark light oil prices like WTI remained relatively healthy, meaning the change in the price spread was almost entirely driven by regional dynamics affecting WCS.

This time around, things are different — the prices for all varieties of crude are down to their lowest levels in years.

It’s one thing for WCS to sell at a $17/bbl discount to WTI when WTI is priced at more than $60/bbl, as it was two years ago this week.

When WTI is priced at only $25-30/bbl, however, that same $17/bbl spread can be disastrous to an oil sands producer. As we previously mentioned, the broader oil market collapse and the record-low WCS prices already are spurring capital spending cuts. Still, while these spending reductions may delay some planned production additions, there have been few signs — so far, at least — of a major dialing back of production from existing oil sands projects.

Take a look at US crude oil imports from Canada over the past few months. Refiners are more than happy to take Canadian oil at such discounted prices. Canadian exports to the US continue to set all-time records. Currently, Canada is exporting about 4.6 million bopd to the US. WCS oil is more like Saudi oil than US oil. Saudi's problem is not the US, it's Canada.