The price Canada's oil sands producers receive has fallen to staggering $64 a barrel below the international benchmark after the spread between Canada’s heavy oil and US crude fell to a more than five-year low according to Reuters data.
The deepening discount for Western Canada Select (WCS) – a blend of heavy oil sands crude and conventional oil – comes on top of declines for US benchmark Nymex West Texas Intermediate (WTI).
US crude is now close to $23 cheaper than global oil in the form of North Sea Brent. WTI always traded at a premium, but that changed in 2009 when the Saudis stopped using it as the benchmark and switched to Brent.
Brent was trading at $109 in Europe on Friday which translates to an effective price for bitumen-derived oil from Alberta's oil sands of just over $45 a barrel.
At $45 existing steam-assisted oil sands production barely breaks even. As for conventional oil sands plays – truck and shovel makes up 20% of the oil sands industry – they need $90 – $100.
Awful economics haven't stopped China and other emerging market players from pouring billions into the Alberta oil patch and bringing new projects on stream.
Chinese giant CNOOC – famously barred by George W Bush from investing $18 billion in US oil in 2005 – has just picked up Canada's Nexen for a similar sum.
Biggest problem for the oils sands is 99% of it ends up south of the border at Cushing, O.K., where WTI is priced, adding to a glut that has persisted for years.
For the foreseeable future – any new pipeline capacity to carry oil sands crude to Asia and elsewhere is years away if it happens at all – China is in effect helping to supply the US with the cheapest oil on the planet.
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