Oil Price Differential in Canada - Feb 27

[dan_s]

Notes below are from Eight Capital, a research firm based in Canada:

Significant increases in Canadian crude production are speculated to be the result of over supply pipe capacity. This puts the country's producers in a vicarious situation as the TMX project took over a decade to complete, raising doubt of another major export pipeline ever being constructed. Of note, Enbridge ENB-T (Not Covered) recently stated, “This notion that the Mainline is going to lose a bunch of volume when TMX comes is a bit of a stale concept. It might have been valid a few years ago.”

Eight Capital Take: As shown in Figure 1, estimated growth in Western Canada will require TMX start-up by Q3/24 in order to prevent differentials blowing out, in our view, as we see exportable volumes exceeding current pipeline export capacity at that time. With respect to the longevity of the incremental capacity from TMX, we see exportable supply outpacing pipeline capacity as early as late 2026. Very near-term, before thinking of TMX, we expect to see a temporary meaningful narrowing of differentials in Q2/24, potentially to the single digits, due to our view that a combination of minimal planned refinery turnarounds in the U.S. and a large number of oil sands turnarounds in the quarter (Figures 2 and 3) will result in refineries being short on heavy oil supply, especially as BP-N's (Not Covered) Whiting refinery ramps back up and the asphalt/road building season kicks in during the warmer months.
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Lower differentials should help all of our Canadian companies in 2H 2024 - 2026. Hemisphere Energy gets the most upside from this as demand for heavy oil increases. Also, if Trump is our next president, the Keystone XL pipeline will be completed quickly.

[dan_s]

Eight Capital does not cover Hemisphere. In the report they show Surge Energy (SGY.TSX and ZPTAF) as getting the most direct benefit from the lower differential.

Send me an email if you'd like to see the full report: dmsteffens@comcast.net