It has been among the most important uncertainties facing Canada's energy industry, which has faced dramatically different views on whether Canadian oil is set for a big comeback, or mired in years of dismal pricing.
How about both? And how about both in just a week's time?
After a terrible spring, Canadian oil traded for September delivery had quietly staged a huge rally. In the past few weeks, culminating on Monday, the synthetic crude oil that comes from oil sands operations equipped with pre-refinery-like "upgraders" sold for as much as $8 (U.S.) a barrel above the North American benchmark West Texas Intermediate.
Same story for light, sweet oil, which hit $2 above WTI, according to figures tracked by Net Energy Inc., and heavy oil, which at one point sold for just $10.75 below WTI, a narrow spread less than half historical differentials.
Numbers like that portended incredibly good times for the energy industry, whose second-quarter results fell by billions after weak pricing earlier in the year.
And then it all began to fall apart. On Thursday, Enbridge Inc. announced its pipelines are unusually full for September, requiring it to cut back requested throughput on its Line 5 line, to Sarnia, Ont., by 8 per cent; on its Line 6A line, to the Chicago area, by 20 per cent and on its Line 14 line, also to Chicago, by 13 per cent.
Suddenly, it became clear Canadian crude would be backed up behind pipes, a scenario that always hurts prices. Immediately, September prices began to fall: synthetic, Net Energy said Friday, was down to a $6.50 WTI premium, light was at $2 below and the heavy spread had ballooned to $16.
The dramatic shift comes amid a growing split in forecasts for future pricing. A few weeks ago, Canadian Natural Resources Ltd. outlined a confluence of factors it said would produce a bonanza in coming years for oil sands producers. At the same time, analysts and energy consultants have taken a more dour view: a May outlook produced by Wood Mackenzie, for example, said the Enbridge pipes that carry most Canadian oil exports into the U.S. Midwest will end 2012 effectively full.
So much oil is now on that system, both from Canada and North Dakota, that Wood Mackenzie estimates Enbridge pipes will hit 90 per cent capacity south of Superior, Wisc., a location critical to supplying Midwest refineries, this year.
"We consider this to be close to the effective maximum," the firm said. It added: "This results in further downward pressure on Edmonton pricing and is very likely to result in volatile prices, with traders highly sensitive to potential pipeline interruptions etc."
Indeed, a lengthy period of volatility – like the one seen in microcosm this week – seems to be about the only thing forecasters can agree on.
"Sometimes it's swinging in the wrong way and sometimes it's swinging in the right way. At the end of the day, volatility is not good, and you want more certainty," said Trent Stangl, vice-president of marketing and investor relations for Crescent Point Energy Corp.
For Crescent Point, the solution has been to abandon pipes where it can. Instead of depending on Enbridge, it has instead begun building up its ability to load oil on rail cars, which are flexible enough that the company can mute, if not silence, the volatility, by making rapid adjustments to the markets it sells and ships to.
With pipe, the steel "goes from a to b," Mr. Stangl said. With rail, "on a month to month basis, you can turn it in a totally different direction."