'We're not getting full value': Sask., Alta. oil stream sees widest price gap in 5 years
A price differential between Canadian and U.S. oil could prove costly for Saskatchewan and Alberta.
Western Canadian Select, which consists largely of a heavy type of crude oil from Alberta and Saskatchewan, is currently priced at $33.84 US per barrel. It usually trades at a discount price compared to it's U.S. counterpart, West Texas Intermediate Crude, in part because it is more difficult to process.
Currently, West Texas Intermediate Crude is ringing in at $68.99 US per barrel.
The $35.15 differential is the largest in five years.
Some experts say the differential is mainly due to a lack of pipeline capacity for Western Canadian Select and a large inventory of heavy crude. Essentially, there's an abundance of supply and not enough resources to transport it.
Therefore, the price per barrel is decreasing as an incentive to purchase from Western Canadian Select.
Richard Masson, former head of the Alberta Petroleum Marketing Commission and now an executive fellow at the University of Calgary's School of Public Policy, said this could cause problems for governments who depend on oil.
"What it means is lower government revenues, higher government deficits," he said.
"We're producing a lot of oil, but we're not getting full value for it."
According to Saskatchewan Premier Scott Moe, the increasing price differential could cost the provincial government about $300 million dollars per year instead of the $210 million they initially expected.
The news could be bad for consumers as well, according to Masson, as lower oil prices don't necessarily mean cheaper fuel because gasoline is a "very tradeable commodity" and is transported by rail rather than pipeline.
According to Masson, Canada needs to improve on oil transportation in order to get a competitive price, saying the differential won't improve until more pipelines get built.
Impact on producers
As a result of the differential, oil producers around the country are getting far less for their oil than others do, including Saskatchewan producers.
"It means prices are low, so revenues will be lower," said CBC business reporter David Blair.
"They will just not be making the money that they would make if the price was higher."
"Producers in Saskatchewan and Alberta are making half of what the North American benchmark, West Texas Intermediate, is getting right now," said Blair.
