Market Snapshot: Crude-by-rail exports reach record highs before falling to near record lows in 2020

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Release date: 2020-12-02

Canadian crude-by-rail exports reached an all-time high in February 2020 at over 411 thousand barrels per day (Mb/d), then plunged by 90% five months later to levels not seen since June 2012. Recent crude-by-rail volumes have been gradually recovering, but are still well below levels from early 2020.

After oil prices fell significantly March through May 2020 due to lower global oil demand resulting from the COVID-19 pandemic, Saudi Arabia and Russia increased their oil production in a fight for market share, and western Canadian producers cut almost one million barrels per day of western Canadian oil supply. As a result, throughput on Canada’s major crude oil pipelines systems fell from March 2020 to June 2020, leaving Canada’s major oil pipelines running well below capacity for the first time in years. Oil that was previously shipped by rail, and had not been shut-in, could now be shipped by pipeline which is less expensive.

Figure 1. Crude-by-rail Exports and WCS-WTI Price Differential

Source and Description

Source: CER and Net Energy

Description: This combined area and line chart shows volumes of crude oil exported by rail in Canada and the WCS-WTI price differential. In 2018, the volume of crude oil exported by rail averaged 231 Mb/d. This increased to over 273 Mb/d in 2019 and in the first quarter of 2020 to over 388 Mb/d before decreasing the next six months (April to September) to average almost 74 Mb/d. The WCS-WTI price differential averaged US$26.86/barrel (US$/bbl) in 2018 and decreased to US$14.08/bbl in 2019. The differential decreased to an average of US$11.24/bbl in the first nine months of 2020.

Excess pipeline capacity and lower shipping costs also meant that the price differential between West Texas Intermediate (WTI) and Western Canadian Select (WCS) narrowed to historically normal levels of about US$10/bbl. As previously shut-in production comes back online and pipelines fill to near capacity again due to higher oil prices, differentials may widen as shippers need to find another, more expensive, way to get their production to export markets. However, differentials must widen to around US$20/bbl to justify crude-by-rail exports like earlier in 2020.

Crude-by-rail exports also typically lag one to two months behind changes to differentials, so differentials could widen but crude-by-rail exports might not immediately increase. The Government of Alberta recently announced that, as of December 2020, monthly oil production limits will be removed. The Alberta government forecasts that oil storage inventories are expected to remain low and that pipeline export capacity will be sufficient going into 2021.

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