Extreme cold’s silver lining: Oil sands prices jump

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Frigid temperatures are helping to light a fire under Canadian crude prices.

Some of the country's largest oil sands producers have reported lower-than-expected production for December, with cold-weather-related constraints shouldering part of the blame for the shortfall.

The constraints have helped shrink the discount on Western Canada Select heavy crude against U.S. benchmark West Texas Intermediate to unseasonable levels.

WCS for February delivery sold on Friday for $20.50 (U.S.) per barrel less than WTI, according to oil broker Net Energy Inc. That compares with a spread of around $40 a year ago, when the Alberta government warned of a major drop in revenue due to the so-called "bitumen bubble."

Following a spring and summer of stronger pricing – thanks to slower-than-expected production gains and higher capacity to move supplies to market by rail – prices slumped back into the same range in November.

On Friday, Suncor Energy Inc. reported December oil sands output averaged 417,000 barrels a day, not including its share of Syncrude Canada Ltd. output. That's down from 437,000 the month before.

One factor behind the drop was the outage in October of a TransCanada Corp. natural gas line in the Fort McMurray, Alta., region. The shutdown forced gas supplies to be piped in through a smaller conduit, Canaccord Genuity analyst Phil Skolnick said.

In addition, when the northern Alberta weather turned cold and heating demand increased, the Suncor operations had to compete with other customers for gas. It reduced steam-generation capacity at the Firebag bitumen-production facilities, Mr. Skolnick said.

Extreme cold weather also limited output at Syncrude. December production averaged 291,300 barrels a day, down from 323,600 in November, according to Canadian Oil Sands Ltd., the owner of the largest interest in the venture.

Mr. Skolnick said it is likely that the freezing weather played havoc on Syncrude's upgrading and oil sands extraction equipment.

Prices for light synthetic crude, the type produced at the Syncrude and Suncor mining and upgrading operations, have also jumped in recent days.