Canada is getting absolutely murdered by oil supply bottlenecks.
Oil from the Canadian tar sands is selling at a $32.75/barrel discount to WTI and $39.50/barrel less than Brent. It has nothing to do with quality, refiners love Canadian oil and similar oils trade near par with WTI.
In August, Canada reported a $1.31 billion trade deficit. Here’s the math to balance it out: Each day, Canada produces 1.31 million barrels per day; there were 31 days in August and a $32.75 discount. The total: $1.33 billion — slightly larger than the monthly deficit.
There are some other factors mixed in but any way you slice it, Canada is losing out bigtime. The solution has been sitting on the shelf for 5 years — the Keystone XL pipeline will bring oil directly from the Alberta oilsands to Cushing and will have an 860,000 bpd capacity.
The failure to build the pipeline means Americans pay more for gasoline but the inability to get timely approval has been an abject failure of Canadian diplomats. A final decision is expected sometime in the next two months but the way TransCanada is acting (and the way the share price has performed) I’d say the probability of rejection is 70%. Republicans could push for approval in the debt ceiling debate and if it’s approved, it would give a long-term, steady boost to the Canadian dollar.
