Canadian heavy oil prices are under pressure as Venezuelan crude floods the U.S. market and Alberta oil sands production surges. The discount on Western Canadian Select (WCS) heavy crude widened to US$28 per barrel below West Texas Intermediate (WTI) on Wednesday, a US$15 increase from a year ago. With WTI nearing US$98 per barrel, Canadian producers are missing out on higher prices, highlighting their reliance on the U.S. market, which absorbs 90% of their exports.
The return of Venezuelan oil to the U.S. has been faster than expected, with exports rising from 125,000 barrels a day at the start of the year to an average of 600,000 barrels a day this month. This surge, combined with full pipeline capacity, has intensified the need for Canada to diversify exports to Asia through the proposed Pacific Link pipeline, recently designated a project of national interest by Ottawa.
Analysts note that the widening discount, or differential, has been a surprise for Canadian producers. TD Cowen revised its forecast, predicting the differential to average US$15.50 in 2026, US$17 in 2027, and US$16 in 2028. Despite the pressure, higher benchmark oil prices and strong refining margins have partly offset the impact, keeping profits robust for Canadian producers.
Looking ahead, Bay Street remains optimistic about the Canadian oil and gas sector, with expectations for strong third-quarter earnings. Analysts highlight the sector's medium-term outlook, driven by LNG exports, data center demand, and production growth, which could lead to more project announcements and renewed share price performance.