While the U.S. oil industry has hit a speed bump with the recent $20 drop in oil prices in New York, producers in Canada are in a full-blown crisis. Heavy Canadian crude has been on a downward spiral since mid-May, with prices plummeting by more than 60 percent as an onslaught of new production from the oil-sands overwhelms the nation’s pipelines. In the past two months, the decline accelerated as many of the U.S. refineries that processed all that oil shut down for maintenance.
The result is the worst pricing environment in the Canadian oil industry’s history and a disaster for a sector that accounts for about a 10th of the nation’s economy and a fifth of its exports. The crisis is threatening oil producers’ profits, causing deep divisions within the industry and putting pressure on Justin Trudeau’s government to act. Adding to the gloom is the relatively positive outlook for the U.S. energy industry is enjoying.
“In my 36 years in this business, I have never seen such a wide differential in sentiment between Canada and the U.S.,” Kevin Neveu, chief executive officer of oilfield-service company Precision Drilling Corp., said in an interview in Calgary. “I’ve never seen more frustration among our customers and our competitors and in our peer-group companies than right now.” Western Canada Select crude — the main blend sold by the nation’s prolific oil sands — closed at $13.46 a barrel on Thursday, the lowest in Bloomberg data stretching back to 2008. The blend’s discount to U.S. benchmark crude exploded to as much as $52.40 a barrel last month, also a record.
While the price has recovered somewhat in recent weeks as some U.S. refining capacity has come back online, the crisis is far from over. The nation is still producing more oil than its pipelines can handle and its storage capacity is filled to the brim.