The price of Canadian heavy crude has fallen so much that it now costs more to ship the oil than to buy it.
Industry analysts say that the fact that the cost of shipping crude oil to refineries now exceeds the value of the oil itself, it will likely cause a number of Canadian oil-sands producers to shut down their operations. Western Canadian Select crude in Alberta dropped $2.84 U.S. to a record low of $6.45 U.S. a barrel on Thursday.
According to Bloomberg data, that makes the Alberta crude oil almost as cheap as a large latte coffee sold at Starbucks. Synthetic crude, produced from oil-sands bitumen that’s been run through an upgrader, is even cheaper relatively speaking – the price has fallen to $10.85 U.S. a barrel, a record-low.
Canadian heavy crude now costs less than the price paid by a company with long-term contracts to ship it down Enbridge Inc.’s (TSX: ENB) Mainline and Flanagan South systems to Texas. That’s a problem for oil-sands producers like Cenovus Energy Inc. (TSX:CVE), which has commitments to ship 75,000 barrels a day through the pipeline system. MEG Energy Corp. (TSX:MEG), another heavy oil producer, has contracts to ship 50,000 barrels a day and has contracts in place requiring it to expand to 100,000 barrels a day in the second half of 2020.
Enbridge charges $7 U.S. to $9 U.S. a barrel to ship heavy oil to Texas, excluding additional charges for power and tariffs
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