Canadian oil producers are benefiting from the strongest demand for their product in years, as threatened U.S. tariffs and stronger sanctions against competitors such as Venezuela lifted their crude to a four-and-a-half year high versus the U.S. benchmark on Wednesday.
The discount of Western Canada Select (WCS) heavy crude to the U.S. benchmark West Texas Intermediate futures (WTI) narrowed again on Wednesday, the same day the Trump administration said USMCA-compliant goods from Canada, including oil, would remain tariff exempt.
WCS for May delivery in Hardisty, Alberta, settled at $9.40 a barrel under WTI, according to brokerage CalRock, after having settled at $9.80 under the U.S. benchmark on Tuesday.
The narrowing of the price discount on Western Canadian heavy crude runs contrary to expectations, said RBN Energy analyst Martin King. The discount had widened earlier this year as U.S. President Donald Trump threatened tariffs on imports from Canada and many market observers believed further widening was possible amid ongoing trade uncertainty.
“It’s been quite surprising actually,” King said, adding the WCS discount has not been this low since September of 2020.
“I think as an attempt to get ahead of the tariffs, we’ve seen people ship a lot of oil out of (Canada)…and that has led to a pretty decent drawdown in total oil inventories in (oil-producing province) Alberta,” King added.
The U.S. Energy Information Administration said on Wednesday crude imports from Canada, the top oil supplier to the U.S., last week hit their highest level since January 3, rising 438,000 bpd to 4.42 million bpd.
The tighter WCS discount also reflects stronger global pricing for heavy crude relative to lighter grades due to OPEC+ production cuts, strong shipping activity and tighter U.S. sanctions on heavy crude producing countries such as Venezuela, said Rory Johnston, energy analyst and founder of the Commodity Context newsletter.
Trump said on Wednesday he would impose a 10% baseline tariff on all imports to the U.S. and higher duties on dozens of the country’s biggest trading partners.
King said if Canadian crude continues to be exempt from tariffs in the long-term, it will face strong demand from U.S. Gulf Coast refiners — especially given Venezuelan sanctions. He said the discount on Canadian heavy crude could tighten further, by another dollar or two.
U.S. crude oil futures rose by a dollar and then turned negative, along with the Brent contract, over the course of Trump’s press conference on Wednesday afternoon in which he announced tariffs on trading partners including the European Union, China and South Korea.
(Reporting by Amanda Stephenson in Calgary; Editing by Shreya Biswas)