• West Canada Select (WCS) trades at a big discount versus the WTI oil price. The discount has reduced with $ 8-10/bbl following the start of the Transmountain pipeline expansion in May 2024.
• Net realized oil prices for Canadian companies differ from WCS and vary from company to company. In Q1 2025 some companies had oil price discounts similar to WCS ($12-14/bbl) while other companies have smaller discounts ($ 4-6/bbl).
• The 10% US oil import tariffs, imposed in March 2025, seem to have had a limited impact on the net realized oil prices and on the WCS.
• Applying a 5% discount on the oil price for Canadian companies to reflect US import tariffs in the oil and gas ranking model is too severe. The discount will be reduced to 2.5% and reviewed after Q2 results.
West Canada Select (WCS)
West Canada Select (WCS) is the Canadian benchmark price for a mixture of bitumen and diluent. The WCS trades at a big discount to the WTI oil price. The price difference is due to:
• Quality. WCS is a heavy oil with high sulfur, high ash, high metals, which increases refining costs The quality-related discount is approx. $ 5-8/bbl as can be seen in the price of a barrel of WCS in Houston, Texas, where it enjoys easy market access.
• Location. There are substantial transportation costs for oil to be transported from Canada to its customers. The transportation-related discount typically amounts to $ 7-$10/bbl and can be seen in the difference between the price of a barrel of WCS in the main hub of Hardisty, Alberta and the same barrel in Houston, Texas.
• Lack of pipeline capacity. A lack of pipeline capacity, forces crude to rail transport. A such there can be an extra charge of $ 3-5/bbl. The start of the Trans Mountain pipeline expansion in mid-2024 removed for 2025 the pipeline bottleneck and the need for extensive rail transport.
• Lack of competition. Until recently there was a lack of competition. Most of the crude was sold to a limited number of US refineries. The start of the Trans Mountain pipeline expansion in mid-2024 has (partially) removed the lack of competition and 500-600 K BoE/d of Canadian crude now is finding its way to SE Asian markets (was < 100 K bbl/d).
Following the start of the Trans Mountain pipeline expansion in May 2024, the discount between WCS and WTI price has reduced with $ 6-8/bbl. WCS in early 2025 now trades at a $ 12-14/bbl discount versus WTI (was $ 18-20/bbl).
The discount temporarily spiked in 2025 in late Jan/early Feb, but fell back in March, April, and May.
- WCS discount.jpg (53.51 KiB) Viewed 135 times
Net realized oil prices
Net realized oil prices (excl hedging) for Canadian companies differ from WCS. Reason is that the crude quality and the transportation distance per company vary. Also, some companies sell direct to refineries in the NW of the US and have long-term contracts with different pricing.
The realized oil prices for some Canadian oil companies over the period Q1 2024 - Q1 2025 are shown below.
- Canada oil price discount.jpg (57.06 KiB) Viewed 135 times
The discounts increased with $ 1.5-2.5/bbl in Q1 2025 versus Q4 2024. The same increase can be seen the WCS discount in Jan/Feb 2025. This seems to be part of a normal seasonal effect. For the WCS the higher discount did not continue after the 10th of March. Data for oil companies realized oil prices after March will not be available until the Q2 results, but I assume that they will not deviate from the trend seen in the WCS.
US oil import tariffs
The Trump Administration imposed on the 4th of March a 10% import tariff on energy from Canada, whereafter on the 7th of March an exemption was announced.
The tariffs are not applicable if the products are covered by and compliant with the United States-Mexico-Canada Agreement (USMCA). One of the requirements for USMCA is a certificate for place of origin. It is unclear how long the USMCA exemption will be maintained. There is no known end date for the exemption.
The majority of $125 billion in Canadian energy imports into the U.S. in 2024 would have been be subject to the 10% tariff. Importers in 2024 did not claim USMCA treatment on $78 billion in Canadian crude oil that entered the U.S. and another $16 billion in energy products came in from Canada tariff-free and outside the USMCA.
With the amount of tariff at stake, importers in 2025 most likely will be making more USMCA claims. The chart below shows the WCS discount since president Trumps election. It confirms that discount have eased after March.
- Oil import tariff impact on WCS.jpg (66.11 KiB) Viewed 135 times
Conclusions
• West Canada Select (WCS) trades at a big discount versus the WTI oil price. The discount has reduced with $ 8-10/bbl following the start of the Transmountain pipeline expansion in May 2024.
• Net realized oil prices for Canadian companies differ from WCS and vary from company to company. Iin Q1 2025 some companies had oil price discounts similar to WCS ($12-14/bbl) while other companies have smaller discounts ($ 4-6/bbl).
• The 10% US oil import tariffs, imposed in March 2025, seem to have had a limited impact on the net realized oil prices and on the WCS.
• Applying a 5% discount on the oil price for Canadian companies to reflect US import tariffs in the oil and gas ranking model is too severe. The discount will be reduced to 2.5% and reviewed after Q2 results.