Canadian heavy crude oil prices, (Western Canada Select), continue to decline against West Texas Intermediate crude, driven by several factors including the Russian war on Ukraine and the abundance of U.S. crude supply.

West Texas Intermediate crude is considered one of the global benchmark crudes used in pricing other crudes, especially in North America, the world's largest oil market, hence it is the oil relied upon at the New York Exchange, according to information monitored by the specialized energy platform.

Canadian oil had witnessed a sharp decline during October of last year, and it is expected to remain weak next year (2023), according to Reuters.

Canadian Oil Prices

Canadian oil is traded in Hardisty, Alberta, at about $30 per barrel less than West Texas Intermediate U.S. crude.

During the first three quarters of the current year 2022, the average price of Western Canada Select was about $16.67 per barrel less than West Texas Intermediate crude.

Throughout most of this year, the United States has released millions of barrels from the Strategic Petroleum Reserve to combat rising oil prices.

On October 18, 2022, the U.S. Department of Energy announced the release of 15 million barrels from the emergency reserve for delivery in December, as part of a plan to sell 180 million barrels from the strategic reserve, announced by U.S. President Joe Biden last March, for six months, following the disruptions caused by the Russian invasion of Ukraine.

Releasing millions of barrels of high-sulfur crude flooded the U.S. Gulf Coast, home to the world's largest heavy oil refining center, with crude similar to Western Canada Select.

In September 2022, the BP-Husky Toledo refinery in Ohio, operated by British oil company BP, which processes up to 90,000 barrels per day of heavy crude, was closed after a massive fire that caused two people to suffer severe burns.

Competition from Russian Oil

The Canadian oil market was slow to respond to the Toledo refinery shutdown, while U.S. refineries entered scheduled conversion processes, which further reduced demand, and the differentials between Canadian oil and West Texas Intermediate collapsed.

Refineries work to convert crude oil into various petroleum derivatives, such as gasoline, diesel, and jet fuel.

Other factors affecting Canadian oil prices include competition from Russian crude in the global market, and the high natural gas prices that made refining heavy oil more expensive.

Meanwhile, production in Alberta, home of the oil sands and Canada's largest oil-producing province, reached a record level of 3.38 million barrels per day in September 2022, an increase of 9.6% from the same period last year.

Canadian oil production is expected to rise to 5.7 million barrels per day during this year (2022).

Western Canada Select recorded a record discount of more than $50 per barrel below West Texas Intermediate in October 2018 when export pipeline bottlenecks and refinery maintenance led to a crude oil glut in Alberta.

2023 Forecast

Canada exports about 3.8 million barrels per day of crude oil to the United States, with Alberta being the largest oil exporter in America, having exported about 1.4 billion barrels, or about 60% of U.S. imports last year (2021).

The current decline in Canadian oil prices is attributed to weak demand, as a new export pipeline called Enbridge's Line 3, which started operating last year (2021), helped align Canada's export capacity with its production capacity.

Several industry analysts and CEOs, including the CEO of Cenovus Energy Alex Pourbaix, expect the discount on Canadian crude prices to continue during the first half of 2023.

Canadian oil is likely to trade at about $14 to $15 per barrel less than West Texas Intermediate crude next year (2023).

In 2021, Canadian oil prices were about $12.78 per barrel less than their U.S. counterpart, according to data from the Alberta Energy Regulator.