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Alberta oil prices face further hit from transportation bottlenecks in 2018: report

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Transportation bottlenecks are helping increase the spread between what Alberta oil producers receive and the benchmark West Texas Intermediate (WTI) price, according to a report by Deloitte.

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A forecast released by the consulting firm Thursday predicts WTI will rise to an average $55 US a barrel this year, while Western Canada Select crude will drop almost 10 per cent to $46.40 Cdn, or about $36 US.

Increased oilsands output is creating concerns about how to get it to markets even as Canadian companies have a chance to boost sales because Venezuela and Mexico are selling less heavy oil to their American customers.

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“If we’re looking on the oil side, significant expansion is going to be difficult. Pipelines are difficult to get approved,” Deloitte Canada partner Andrew Botterill said from Calgary.

“We’re shipping volumes to the United States like we typically have, and it’s competitive right now.”

The planned Keystone XL pipeline to the Gulf Coast would boost Canadian sales in the region, while the proposed TransMountain pipeline expansion to B.C. would allow Alberta producers to grab some of the profitable Asian market that now absorbs one-third of U.S. oil exports, Botterill said.

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The report expects the Canadian-American differential to moderate or shrink if Canada can boost market share, and sees average WTI prices going over $75 US by 2022.

“We do ultimately believe we will be able to get more volume down to the U.S. and be able to compete,” Botterill said.

Although WTI is now about $61 US, he thinks this price is the result of recent international volatility and doesn’t foresee it being maintained for the rest of 2018.

A year-end report by the Morningstar investment research company says WTI will only average $48 US in 2018, and Botterill agreed the volatility has led to wide variations between forecasters.  

Meanwhile, he feels natural gas producers will struggle as they continue to face low gas prices, which the report doesn’t see rising above the Alberta’s recent high point in 2015 for at least a decade.

Botterill, who described prices in the second half of 2017 as “simply awful,” said issues include rising American supply and infrastructure maintenance projects.

“We’re seeing very poor prices, and that’s something we think will continue to plague the industry.”

gkent@postmedia.com

twitter.com/GKentYEG

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