Western Canadian Select Discount Widens to Largest Gap Since 2022 Amid Gulf Coast Pressures
The discount for Western Canadian Select heavy crude has widened to US$31 per barrel against West Texas Intermediate in Alberta, the largest gap since October 2022. Rising Venezuelan imports and elevated tanker rates linked to the Iran war are pressuring prices, prompting Canadian governments and producers to pursue export diversification toward Asian markets.
The price discount for Western Canadian Select (WCS) heavy crude oil in Alberta expanded to US$31 per barrel compared to the monthly average of West Texas Intermediate as of Tuesday, marking the widest gap since October 2022. On the U.S. Gulf Coast, the discount for Canadian heavy crude reached US$23.50 per barrel, the largest margin in data stretching back to 2018.
While Brent futures have surged to about US$115 per barrel, the absolute price of WCS in Alberta has mostly traded below US$70 per barrel since June. This widening differential prevents pure producers from fully benefiting from rising global oil prices.
The growing gap is driven by a supply build-up in the Gulf of Mexico resulting from increased Venezuelan imports into the United States, which compete directly with Canadian heavy crude. High tanker shipping rates are also making exports from the Gulf Coast expensive. Steven Ledbetter, chief operating officer of HF Sinclair Corp, stated that disruptions to tanker movements caused by the Iran war are putting pressure on WCS prices. The Baltic Dirty Tanker Index rose to a record above 8,000 earlier this month before settling at 7,163, compared to levels below 2,000 prior to the US-Israeli war on Iran.
Currently, about 90 per cent of Canada’s oil heads south to U.S. refiners. To reduce this reliance and access better prices in foreign markets, the Canadian and Alberta governments are backing a new million-barrel-a-day pipeline to the coast of British Columbia to diversify oil trade toward Asia.
Producers are also taking steps to secure alternative routes. Tamarack Valley Energy Ltd. has signed up for long-term capacity on the expanded Trans Mountain Corp. pipeline starting next year to help bring in higher revenues through market diversification. Meanwhile, Alberta oilsands producers that operate their own refineries remain hedged against the widening differential.