Canada's oil sands industry is facing one of the bleakest markets in years, hammered by plunging U.S. and global crude prices even as new pipelines have cleared logjams on key export routes.
Western Canadian Select (WCS) oil sands crude has fetched an average of roughly $15 (U.S.) under the headline North American oil price so far this month, putting the value of Alberta's heavy crude at just under $20 a barrel as of Monday's close.
Discounts at that level are a significant improvement from late 2012. At the time, a combination of surging production and pipeline shortages drove prices for oil sands crude as much as $40 a barrel under the West Texas intermediate (WTI) benchmark price, sparking concerns about provincial finances and corporate profits.
Some of those export snarls eased as Enbridge Inc. expanded existing pipeline routes and more crude flowed on trains, enabling increased shipments to the U.S. Gulf Coast.
But oil's plunge to around $35 a barrel has largely negated those benefits, erasing profits even as the sharp discounts, or differentials, of recent years have been cut in half. It shows the Alberta industry remains highly vulnerable to swings in global commodity markets well beyond the province's borders.
"Even though the differentials have narrowed from the huge $30 levels of 2013, the fact that you've got a discount at all off exceptionally low WTI levels means that the price is really quite grim," said Patricia Mohr, vice-president and commodity markets specialist at Bank of Nova Scotia.
The outlook for 2016 is equally bleak. WCS, a blend of conventional heavy oil and bitumen from the oil sands, for February delivery traded at about $13 under U.S. crude oil on Monday, according to Calgary broker Net Energy Inc.
Prices for the extra-thick crude have cratered along with U.S. and international benchmarks as global stockpiles swell and warmer-than-expected winter weather undermines demand forecasts.
Iran also appears set to add more crude to already saturated global markets once Western sanctions are eased early next year, exacerbating supply pressures.
"I think the competition in the oil markets is actually heating up," Ms. Mohr said.
"It's probably going to be very intense in early 2016."
Brent oil has plunged about 19 per cent this month and sank to as low as $36.04 a barrel, an 11-year low, during trading on Monday. It closed at $36.35. U.S. crude for future delivery closed at $34.74.
Analysts say the extended rout will paint a dismal picture of the industry's financial health when companies report fourth-quarter results early next year.
Major oil sands producers such as Cenovus Energy Inc., Canadian Natural Resources Ltd. and others have mothballed growth projects and shed thousands of workers to cope, and many are bracing for years of depressed energy markets.
Meanwhile, Moody's Investors Service has put several large Canadian energy firms on notice of a potential downgrade, citing weakening cash flows.
Alberta's finances are also taking a hit as prices sink. Last week, Standard & Poor's slashed the province's triple-A credit rating, a symbolic blow after years of favourable borrowing costs. The provincial deficit could top $6.1-billion (Canadian) this year, Alberta Finance Minister Joe Ceci has said.
When oil prices were closer to $100 (U.S.), the industry and successive provincial leaders blamed hefty discounts on Canadian oil for sapping billions in revenue from corporate and government coffers.
Weak prices are once again wreaking havoc, despite rising exports and slimmer differentials. So far this year, Canadian oil exports have jumped 7 per cent from levels a year ago, according to Bank of Nova Scotia.
"We're kind of right back to where we were," said Justin Bouchard, an analyst at Desjardin Securities Inc. in Calgary.
This time, however, financial returns have collapsed entirely, making even relatively small price discounts around $15 cut deep, he said. At $35 oil, "that hurts a lot more," he said.