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Alberta's bitumen bubble now seems almost like a relic, but that doesn't mean growing production of heavy crude oil is free of price risk.

Today, the market for the gooey crude looks well supplied and well bought, a boon to producers as well as to the Alberta government, which is dealing with enough political intrigue as the Tories seek a new leader and try to vanquish the ghost of an old one without adding oil-fuelled economic problems.

The price spread between Western Canadian Select heavy oil and U.S. benchmark West Texas Intermediate light crude has been in a relatively tight range around $20 (U.S.) since March. The gap between the two reflects a smorgasbord of transport charges, the extra costs to refine the heavier oil as well as market and operational factors, such as pipeline constraints and refinery outages.

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The energy sector is reaping the rewards of its efforts to work around transport pinch points since early 2013, when the differential, or "diff", blew out to more than $40 a barrel. For a time, the crude was worth just half the price of international Brent oil.

That's when former premier Alison Redford first used the term bitumen bubble, and warned the phenomenon was set to sap the provincial treasury to the tune of $6-billion. Yet the market began to improve within just a few months as the industry, tired of waiting around for governments and regulators to approve major new export pipelines, turned to the rails in a big way and began incremental expansions of the exiting network of pipes around the continent.

Now it's not a full-on bitumen bonanza, but perhaps a bitumen balance, says Martin King, analyst with FirstEnergy Capital Corp. According to his calculations, the Canadian energy industry's capacity for moving oil by rail is up to 450,000-500,000 barrels a day, more than double that of the first quarter of 2013. That's the equivalent of a decent-size export pipeline, and one with hundreds of potential endpoints.

Of course, that's prompted the need for a new era of safety measures, regulation and enforcement, as this week's Transportation Safety Board report on the Lac Mégantic rail disaster spelled out in no uncertain terms.

A few other factors have contributed to today's narrower spreads, including the multibillion-dollar expansion of BP PLC's Whiting refinery in Indiana to take in more Canadian crude, completed late last year, and a slower-than-expected ramp-up of production at Imperial Oil Ltd.'s Kearl oil sands project. Kearl produced 73,000 barrels a day in the second quarter, down from its design capacity of 110,000.

In the coming months, seasonal factors are likely to weigh on heavy oil prices, including the end of the road-paving season, which means a drop in demand for the asphalt derived from heavy crude. In addition, refineries around the continent tend to shut down processing units for maintenance in the late summer and early autumn.

Working against those pressures this year are Enbridge Inc.'s soon-to-be-completed Flanagan South pipeline between Illinois and the Cushing, Okla., storage hub and Seaway pipeline twin project between Cushing and U.S. Gulf Coast refineries. That will boost capacity by 600,000 barrels a day right into a market that's long been coveted by the Canadian industry before the end of this year, Mr. King points out.

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So heavy oil economics are favourable, but don't get too comfortable. Just when the differential has shrunk, the price of benchmark oil has weakened, making the value of Canadian supply on an absolute basis fall in lock-step.

WTI has fallen by more than $10 (U.S.) a barrel since mid-June, despite armed conflicts in the Middle East and other regions. The International Energy Agency said last week the world is well-supplied with crude. In some regions, such as the Atlantic coasts of North America and Europe, there is a glut.

Meanwhile, oil inventories at Cushing have climbed steadily for the past three weeks, according to the U.S. Energy Information Administration, which tends to be bearish for WTI. A further buildup of light crude in the Gulf Coast area, driven by the shale-oil boom, could back supplies up in the U.S., generating pipeline congestion.

The fixes put in place to take the air out of the bubble won't solve all of the problems, and the industry is still laser-focused on building major pipelines to North America's coasts to expand markets. But at least it is not doing so in the panic mode it was in a year and a half ago.

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