Crude differential to narrow as Alberta operations resume


As crews start returning to the Canadian oil sands, production is beginning its slow ascent, bringing more than one million barrels per day of Canadian crude oil back to market. But the effects of the devastating Fort McMurray wildfire won't end overnight. Our research analysts comment on how the Canadian synthetic crude–WTI differential is likely to respond.

With the smoke finally clearing from the fire-engulfed town of Fort McMurray, residents are beginning to return home. So too are workers in the many crews that operate in the Canadian oil sands, where a massive wildfire — areas of which are still burning — displaced more than 90,000 people one month ago.

With some operators, including Suncor Energy, coming back online in a "staged restart" once the evacuation order was lifted on 20 May, an estimated 1.1 million barrels per day of Canadian crude oil is slowly finding its way back to market.

As production resumes, crude differentials are beginning to narrow. Canadian synthetic crude had strengthened to US$2.80 per barrel over WTI (May month-to-date) compared to its April average of US$1.50 per barrel. But the oil market is still feeling the effects of nature's unyielding devastation, which forced numerous companies to cut back production as crews and their families were forced to evacuate.

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Canadian synthetic crudeAs the town rebuilds and production ramps up over the coming weeks and months, we expect current synthetic crude premiums over WTI to weaken. However, the price of synthetic crude will continue to be impacted by planned upgrader outages. Canadian Natural Resources Limited (CNRL) is expected to reduce synthetic crude production in July as its Horizon's upgrader goes into 35 days of turnaround maintenance.

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