Canada's differential dilemma

Wide discounts for Canadian oil lead to unilateral production cuts

Canadian oil producers are price takers, not price makers. But what to do when your main export is selling for less than half of global prices? That was exactly the situation in November last year when the differential — or discount — for Western Canadian Select (WCS) widened to an all-time high of $46/bl to West Texas Intermediate (WTI) and prompted a crisis of confidence in the country's oil patch after nominal Canadian prices fell below $11/bl. Given that fully 99% of exports go to the US, domestic producers are effectively subsidising American refiners to the tune of $2.4/bl per month — both figuratively and literally lining the pockets of US president Donald Trump's economic resurgence.