A deepening oil market slump is adding fresh pain for producers of the world’s cheapest crude as the Canadian heavy grade reached a record low, raising the prospect of more production coming offline.
Spot prices for Western Canadian Select fell to US$19.81 a barrel on Wednesday, the lowest since tracking began in 2008, according to data compiled by Bloomberg. The benchmark, made up of heavy conventional production and bitumen blended with synthetic crude and condensate, fell with global grades after U.S. gasoline inventories surged the most in 22 years and crude supplies at the American storage hub in Oklahoma climbed to a record.
The low prices could push more of the highest-cost output offline after producers including Baytex Energy Corp. and Canadian Natural Resources Ltd. shut in more than 35,000 barrels a day of heavy oil and bitumen production capacity, according to company presentations and a report published on the Alberta government website.
“We’re below shut-in levels” with current prices, said Tim Pickering, founder and chief investment officer of Auspice Capital Advisors Ltd. in Calgary. There’s currently no incentive to ship Canadian crude to the U.S. Gulf Coast and producers may take oilsands projects offline sooner than planned for annual maintenance because of the depressed prices, he said. “We’re the last barrel produced and we’re the first barrel shut in.”