Cardinal Update – December 2018

CANADIAN OIL: WHAT’S THE DIFFERENTIAL? Beginning in August of 2018 the differential between Western Canadian Select (WCS) and West Texas Intermediate (WTI) widened from <US$20/bbl to $50/bbl. In this note we will address why differentials have increased, our rationale for an average $25-$30/bbl differential in 2019, the low $20’s/bbl in 2020, and a longer-term view. In sum, we do not believe that panic is warranted.

The writing has been on the wall that a sub-$20/bbl differential was not sustainable. Utilizing Canadian production forecasts from CAPP and adding up available pipeline capacity, a clear gap between the two was emerging for late 2018/2019. With no pipeline capacity expected to start until late 2019, this production would have to be transported by rail.

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