A dump truck loaded with oil sands drives through the Syncrude Canada Ltd. mine in this aerial photograph taken near Fort McMurray, Alta., June 4, 2015.Ben Nelms
Syncrude Canada Ltd. will not restore full production at its 350,000-barrel-a-day oil sands mine until early to mid-September, which will support North American oil prices through the summer.
Suncor Energy Inc. – Syncrude’s majority owner – said Monday the oil sands company would begin some production later this month after a power outage shut down operations on June 20.
The company will start up one coker – which processes 150,000 barrels a day of bitumen into a lighter crude – in the second half of July, Suncor said. Production at a second coker will begin in the first half of August, bringing total output to 250,000 barrels.
“Pipeline shipments of treated product are estimated to be approximately 60 per cent to 70 per cent of capacity for August,” it said.
However, a third unit will not resume operations until early to mid-September, bringing the plant back up to full capacity.
The outage at Syncrude has helped boost prices for North American crude, including benchmark West Texas intermediate (WTI), as stocks are being drawn down at Cushing, Okla., a major storage hub. Crude oil inventories at Cushing fell last week to their lowest in 3 1/2 years.
Prices for West Texas Intermediate gained 5 US cents on Monday to US$73.85 a barrel, and have climbed more than 12 per cent since the Syncrude outage began.
Canadian prices hare fared even better. Synthetic crude from Alberta was trading Monday at a US$1-a-barrel discount compared with WTI; the spread was US$4 in June. Western Canada Select − a benchmark for heavy oil − sold at a discount to WTI of US$19.50 for August delivery, while the September spread was US$25.60.
“We’re already seeing the impact [of the Syncrude shutdown], and to the extent those barrels stay off line, we’ll expect to continue to see that kind of impact,” said Judith Dwarkin, chief economist with RS Energy Group in Calgary.
The loss of Syncrude supply buttressed prices for lighter crude types against which it competes in North American markets, but also opened up pipeline space − which had been constrained − for producers of heavier crude. Those suppliers were increasingly turning to more expensive rail transportation to get their product to market.
“There’s more room available on the pipeline,” said Marty King, analyst at GMP FirstEnergy in Calgary. “Going from 350,000 [barrels a day] to zero in just a short time is a big move, so that is definitely helping.“
At same time, strong demand growth and tensions in the Middle East have been driving global crude prices higher even though Saudi Arabia and Russia agreed recently to boost their production by a million barrels a day.
On Monday, North Sea Brent – a key international benchmark – rose 96 US cents to US$78.07.
The United States is renewing its sanctions against Iran after President Donald Trump pulled out of an agreement aimed at preventing Tehran from producing nuclear weapons. Washington has pledged to punish countries that purchase oil from Iran, which exports more than 2.5 million barrels a day.
Merrill Lynch has warned that if the United States manages to stop Iran’s oil output altogether by November, the price of oil in the international markets would reach more than US$120 a barrel.
With a file from Jeff Lewis in Calgary