World's cheapest crude hits record low as oil slump deepens
Most of the countrys oil output is exported and producers are paid in U.S. dollars, while many of their expenses for labor and equipment are paid in cheaper Canadian dollars-EPA Photo
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 going offline.
Spot prices for Western Canadian Select fell to $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 oil-sands 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.”
Maya crude, a heavy grade from Mexico, traded at the lowest since 2004 Wednesday, at $25.55 a barrel.
West Texas Intermediate, the U.S. benchmark, tumbled to the lowest close in seven years, at $33.97. Brent, the European gauge, dropped to its lowest settlement since 2004 at $34.23 a barrel.
Canadian producers are being cushioned somewhat by the country’s weak currency, which has seen its value shrink along with crude.
Most of the country’s oil output is exported and producers are paid in U.S. dollars, while many of their expenses for labor and equipment are paid in cheaper Canadian dollars.
In Canadian-dollar terms, Western Canadian Select at C$28.14 on Wednesday still exceeded its record low of C$27.03 in December 2008.
Still, the pain is being felt across Canada’s largest oil-producing province, Alberta.
Energy companies are shelving new oil-sands projects and have cut more than 40,000 jobs across the country, the industry’s main lobby group estimates.
Capital spending for the 25 largest producers is poised to fall for a second straight year, dropping another 16 percent in 2016, data compiled by Bloomberg show.
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