WCS Crude Discount Hits 2023 Levels Amid Rising Freight Costs

The discount on Western Canada Select (WCS) crude oil compared to the West Texas Intermediate (WTI) benchmark has widened significantly this month, reaching levels not seen since 2023. According to brokerage CalRock, WCS for November delivery in Hardisty, Alberta, settled at $24.80 a barrel below WTI, up from $24.65 on Friday. This discount is more than $10 wider than it was at this point last month.

Rory Johnston, founder of the Commodity Context newsletter, noted that the last time the WCS-Hardisty discount was this wide was in November 2023. The widening is primarily driven by the WCS differential at Houston, which is the steepest since January 2023. Traders attribute this to soaring global freight costs, which have hit record highs due to recent attacks on ships in the wake of the US-Iran war.

The increased transportation costs have made re-exporting Canadian heavy crude from the US Gulf Coast cost-prohibitive. Additionally, Canada's main crude export pipelines are operating at full capacity, leaving limited options to manage the strong production from the oil sands region. Rising imports of Venezuelan crude into the US Gulf Coast are also adding pressure on Canadian barrels.

Global oil prices fell by about $2 on Monday following news of increased crude exports from the Middle East and a pledge by the Group of Seven nations to boost supplies. However, selling was limited by ongoing concerns over disruptions linked to the US war with Iran.