Western Canada’s Oil Prices Could Hold On to Their Recent Gains

After plummeting dramatically last fall, Western Canada’s oil prices made a strong comeback after the Alberta government decided to cut back on the province’s production. At first glance, the current spread between Canadian and U.S. benchmark prices does not appear sufficient to warrant transporting oil by rail to U.S. refineries, which could exert downward pressure on Canadian prices again. However, looking closer at what is happening on the U.S. market, particularly the strong demand for heavy oil in the U.S. Gulf Coast, we see that rail transport could remain viable with current prices. The price of western oil could therefore remain fairly high over the next months, thus limiting the adverse impact on the Canadian economy. Transportation problems will continue, however, to be a constraint for the Canadian oil industry over the medium term.