Oil complex gains boost WCS Hardisty over $60/b for first time since 2014

Western Canada's benchmark heavy crude price exceeded $60/b July 2 for the first time in more than six years amid a broad oil complex recovery.

Western Canadian Select at Hardisty, Alberta, was assessed at $60.01/b July 2, the highest assessment since Nov. 14, 2014. The price surge tracked an increase in the NYMEX WTI Calendar-Month Average, which is used as a basis for Canadian trading.

Crude complex strength amid the coronavirus pandemic has been consistent since the middle of fourth-quarter 2020 amid rebounding demand and timid production.

The WTI CMA, kickstarted by news of vaccine progress, has risen in 64.6% of all assessments since it fell to $36.28/b Oct. 30. The WTI CMA stagnated between $35 and $45/b in the previous five months. Since June 1, the WTI CMA has averaged $70.80/b and peaked at $74.01 July 2.

Moderately stable differentials in June for the heavy sour segment in Alberta have allowed outright prices to trade crude futures higher.

WCS Hardisty June assessments averaged around a $13.81/b discount to the NYMEX WTI CMA since June 1.

Producer hesitation, pipeline bottlenecks

Despite increased refinery runs and strong outright prices, sources have noted production returns may not be swift.

"Seems no stop to it here," one source said of recent price strength. "[It is] fully driven by the recent rally in WTI. Producers [are] swimming in cash they are unlikely to spend on any new growth."

Platts Analytics estimated June Western Canadian production at 4.67 million b/d as of June 1, slightly up from the 4.59 million b/d in June 2020. Platts Analytics forecasts production in June 2022 will be around 4.67 million b/d.

Prior to the coronavirus pandemic, Platts Analytics estimates that Western Canadian production peaked at 4.89 million b/d in December 2019.

Traders have noted additional market hesitation amid midstream bottlenecks because of pipeline capacity constraints.

June apportionment levels for Enbridge's heavy crude Lines 4 and 67 jumped 9 points to 52% from May, which was only eased by 1 point to 51% for July barrels. Apportionment levels indicate the amount of crude nominated for shipment that will be turned away.

Shipping limitations for heavy Western Canadian crudes are expected to see relief starting later this year, however, reducing supply gluts in Alberta.

Enbridge's Line 3 replacement project is expected to be completed in Q4 2021. The project, which will carry heavy Canadian grades to the US Midwest, will more than expand the line's capacity to 760,000 from 370,000 b/d.

Additional relief is slated for late 2022 with the completion of the Transmountain Expansion Project, which will expand capacity to 890,000 b/d from 300,000 b/d. TMX is expected to go online in December 2022.