Spot prices for Canada's benchmark bitumen blend surged June 4 amid reports that Enbridge Inc. has scrapped a plan to limit over-ordering of pipeline space by producers.
Western Canada Select, a blend of oil sands bitumen and lighter oils, jumped C$14.32 per barrel, or 28%, to C$65.88/bbl. The jump sliced its discount to benchmark West Texas Intermediate crude by almost half to C$17.84/bbl, according to data compiled by the Petroleum Services Association of Canada. Western Canada Select prices had averaged C$54.71/bbl so far this year, according to the industry group, while the price differential had averaged C$28.92/bbl.
The price jump came amid reports that Calgary, Alberta-based Enbridge would shelve a plan to limit the nomination of so-called "air barrels" — capacity requests in excess of actual shipper needs — on its mainline system linking the oil sands region with refiners in the U.S. Enbridge told shippers June 4 that the company would not implement rules setting an allowance for the amount of crude companies could nominate for transport on its mainline, according to a Bloomberg News report that cited communications between the company and its customers. The plan, which was announced in May, would have seen pipeline space allocated based on a 12-month average with certain allowances. Enbridge abandoned the proposal after discussions with shippers, the news agency said.
Enbridge and other pipeline operators usually pro-rate shipper requests on their systems in order to meet demand on Canada's constrained pipeline network. Shippers sometimes seek more space than they need in an attempt to ensure their actual requirements are met. As a result, pipeline capacity that is booked sometimes stays unused, creating wasted space and scheduling headaches for the pipelines. Maintaining the existing allocation system could improve the likelihood that sellers moving crude to spot markets will get more space on the system. Enbridge handles the largest share of Canada's crude shipments.
