The price of Western Canadian Select oil is falling thanks to a brutal cold snap in Western Canada, where temperatures less than 20 below are literally freezing Canada’s oil, making it less viscous and difficult to transport.
But that’s not the only oil problems Canada is having due to the cold. Refineries have been disrupted due to the cold, and barrels that can’t be shipped via pipeline due to capacity constraints must be shipped by rail—and trains move slower in the cold as well, Bloomberg reported on Wednesday.
The price of a barrel of WCS has fallen to $35.33 as of Tuesday, from $40.77 just ten days ago. While some of the fall is in line with other oil prices that have fallen this week on geopolitical tensions easing and persistent worry that the China/US trade deal may not boost oil demand growth as much as the market would like, the gap between WCS and WTI has widened, from $22.50 per barrel on January 6 to $22.90 on Tuesday.
Already Canada has restricted production to shrink the gap between the two benchmarks, although it has eased some of these production restrictions as the gap between the two began to shrink last year.
Most of Canada’s oil exports make their way to the United States, with its heavy, sour crude finding a willing market in the US Gulf Coast refineries, which typically set the price of the WCS to WTI differential due to their strong buying power for the grade.
If Canada’s oil production does not fall in line with its falling ability to export its oil in the cold—where the cold and heavy oil must be mixed with extra condensate to keep it flowing—the gap between WTI and WCS will continue to widen.