Canadian heavy crude surges as rail shipments increase

CALGARY (Bloomberg) --Heavy Canadian crude prices narrowed to the smallest discount against U.S. benchmark futures since April as crude-by-rail shipments were forecast to increase.

Western Canadian Select, an oil sands benchmark, shrank $1.30 to $9.20/bbl below West Texas Intermediate crude Tuesday, data compiled by Bloomberg show. Prices surged after Canadian Pacific Railway said crude-by-rail volumes were expected to rise 20% in the third quarter from about 160,000 bpd in the second quarter.

With pipelines full, crude shipped by rail has become the only real alternative left for producers to send excess oil out of the province. The region’s largest producers have been under mandatory production limits since January after rising production drove WCS prices as low as $50/bbl below WTI.

The heads of Canadian oil companies including Cenovus Energy and Suncor Energy are offering to boost crude-by-rail shipments in exchange for higher production limits.