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A machine works at the Suncor Energy Inc. mine in this aerial photograph taken above the Athabasca Oil Sands near Fort McMurray, Alberta, Canada, on Wednesday, June 19, 2014. Canadian crude prices hit their highest level since the early days of the collapse.

Ben Nelms/Bloomberg

Brisk demand along with supply disruptions due to Alberta's wildfires have propelled Canadian heavy crude oil prices to their highest this year.

Recent prices for Western Canadian Select heavy crude, a blend of bitumen from the oil sands and conventional heavy oil, reflect an unusually narrow discount to North American benchmark oil. The weakened Canadian dollar has also boosted returns for Canadian producers, even as OPEC holds firm on output to keep world prices low in a bid for more market share.

Last month, wildfires in the Cold Lake region of northeastern Alberta forced Cenovus Energy Inc. and Canadian Natural Resources Ltd. to shut down major operations and evacuate staff, cutting bitumen production by a total of 230,000 barrels a day, or about 10 per cent of the province's oil sands output.

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"With the forest fires and the shutdown of those projects – though those are starting to come back – there certainly were some supply constraints in the market. That's part of it," said analyst Martin King of FirstEnergy Capital Corp. "Also, there's the issue that U.S. refiners are just running like gangbusters."

Canadian Natural said it is ramping up its Primrose and Kirby South bitumen projects after finding only minor damage after the outages. It expects full production later this week. Cenovus, meanwhile, had said it expected its Foster Creek project to resume normal rates on Monday.

Demand for heavy oil in key markets such as the U.S. Midwest is usually highest in the spring and summer, when the gooey crude is used to make make asphalt for road paving.

On Monday, Western Canadian select (WCS) sold for $7.55 (U.S.) a barrel less than West Texas intermediate (WTI), according to oil broker Net Energy Inc. That compares with a discount of about $18 a barrel a year ago. At the current exchange rate, that puts the price of a barrel, in Canadian dollar terms, at about $62.80, close to prices in mid-November, when the global oil collapse was gaining momentum.

Still, WCS is down 31 per cent from a year ago, showing Canada is not immune to global market forces that have pushed the energy sector into a contraction, resulting in deep spending cuts and thousands of layoffs. However, WTI has fallen 43 per cent in the same period, showing how the most capital-hungry part of the Canadian industry is somewhat cushioned. Canadian producers buy supplies and services in loonies, and sell their products in much stronger U.S. greenbacks.

Prices for synthetic light crude wrung from the oil sands have also climbed, partly on tight supplies due to maintenance at major plants, including Royal Dutch Shell PLC's Scotford upgrader near Edmonton, according to Genscape, which provides oil-market intelligence. Light synthetic for July delivery sold for $2.40 (U.S.) a barrel more than WTI on Monday, Net Energy said.

Last week, the energy industry settled in for extended austerity when the Organization of Petroleum Exporting Countries agreed, as widely expected, not to impose tighter production quotas as a way to return to pre-collapse pricing. WTI fell 99 cents to settle at $58.14 a barrel on Monday.

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Canadian heavy crude oil usually trades at a discount to WTI because it requires more upgrading and refining equipment to turn it into petroleum products. But that price gap, known as the differential, expands and contracts with a host of other factors, including transport constraints, supply gluts or disruptions and overall demand.

In early 2013, the differential was more than $40 (U.S.) a barrel due to surging production and tight pipeline capacity resulting in what was termed the "bitumen bubble." Since then, vastly expanded capacity to ship oil by rail and additions to the continent's pipeline network – especially those that have added routes to the U.S. Gulf Coast from the hub in Cushing, Okla. – have eased some of the problems.

Mr. King said WCS has been making gains in the Gulf Coast against similarly heavy Maya crude from Mexico, which has had production problems. "That's just less competition for WCS down in the Gulf Coast, which just means, 'Hello, better pricing for Canadian barrels,'" he said.

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