Wet weather and a power outage at a major oil sands producer have contributed to crude export supply tightness out of Western Canada, which could tighten supplies to the key Cushing storage hub in Oklahoma and to U.S. Midwest refineries. Supply disruptions in Western Canada are adding to an already tight global market as a fifth of the global oil and gas shipments are stuck behind the Strait of Hormuz due to the U.S./Israel war in Iran. U.S. crude inventories, including those from strategic reserves, have fallen by 79 million barrels since the Iran war began in late February, with inventories at Cushing nearing operational lows. Canada is the world’s fourth-largest oil producer, and the largest foreign supplier of crude oil to the U.S., with the oil flowing into storage tanks at Cushing and to Midwest and Gulf Coast refineries. The U.S. Midwest refiners, which have no access to waterborne crude, are heavily dependent on Canadian oil and many of the region’s refineries have been designed to handle oil sands crude. But recent heavy rains in northern Alberta have temporarily slowed the pace of oil sands mining, while a power outage last week at Cenovus Energy’s Foster Creek and Christina Lake operations prompted the company to declare a force majeure, three sources told Reuters.
The power outage temporarily took about 10% of the company’s oil sands production offline, according to an Energy Aspects research note last week.
Cenovus did not immediately reply to a request for comment.
Canadian crude has also been in high demand since the war in Iran began, especially from Asian buyers who see the country as a safe, secure source of supply. Canada’s Trans Mountain pipeline, which transports Canadian heavy oil to the Pacific coast for export overseas, including to Asia, is running at full capacity for the first time since the completion of a major expansion two years ago.
Western Canadian crude inventories are at their lowest level since 2020, Wood Mackenzie analyst Lee Williams said.
“As of last week, Western Canadian crude inventories had decreased by more than 4 million barrels over the past two weeks and by nearly 8 million barrels since the end of February,” Williams said in an email.
Canadian heavy crude prices have strengthened significantly in the last week-and-a-half, with the discount on Western Canada Select to North American benchmark West Texas Intermediate narrowing by approximately $4 since the end of May.
(Reporting by Amanda Stephenson in Calgary and Arathy Somasekhar in Houston)