File photo by THE CANADIAN PRESS Suncor’s base plant and upgrader in the oilsands in Fort McMurray. Canadian oil producers are pocketing higher profits as a rise in world oil prices meshes with an improving Western Canada supply-demand balance that has dramatically cut the heavy oil discount they faced earlier this year.

Easing pipeline congestion lets Western Canada producers enjoy higher oil prices

CALGARY — Canadian oil producers are pocketing higher profits as a rise in world oil prices meshes with an improving supply-demand balance that has reduced the price discounts they faced earlier this year.

Analysts say temporary shutdowns at Alberta oilsands projects for scheduled maintenance this spring have eased the pipeline congestion that had been exacerbating the difference between bitumen-blend Western Canadian Select and New York-traded West Texas Intermediate crude prices.

That means the oil producers — some of whom cut back output in the first quarter because of poor prices — are seeing benefits from WTI prices that rose to three-and-a-half-year highs above US$71 per barrel this week following U.S. President Donald Trump’s decision to withdraw from the Iran nuclear deal.

“The rally in WTI has some fundamental support and is not all related to Iran and Venezuela,” energy analyst Randy Ollenberger of BMO Capital Markets pointed out in an email on Friday.

“Demand is clearly improving … A further drop in Venezuela production is also a real possibility that could provide a further boost to prices.”

Iran is the third-largest producer of crude within the Organization of the Petroleum Exporting Countries, exporting about 2.6 million barrels per day in April. Prices rose this week on speculation that its exports could be interrupted if sanctions are reapplied by the West.

Global oil prices are also being supported by factors including sliding heavy oil production from Venezuela, which is wracked by political instability, and strong adherence to production limits from OPEC and Russia under their 2016 agreement, said Kevin Birn, vice-president of the North American crude oil markets for IHS Markit.

“Western Canadian producers, any higher price is unambiguously good for them,” he said.

“The situation on pipelines has temporarily been resolved, primarily because of the upstream outages and (maintenance) turnarounds going on, which is allowing the system to clear… and hopefully allowing time for rail to come in.”

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