Western Canadian Select

That's weakened heavy oil markets.

This is where Canada comes in.

So WCS, or Western Canadian Selected Differentials, which is the main market-driven heavy oil benchmark now in Houston, that widened from around $3, $4 a barrel under WTI in Houston to $8 a barrel under.

So it kind of doubled that.

That is the Venezuela effect.

Uh, let's go to this next email from Fred.

Uh, the spread between, uh, West Texas Intermediate and Western Canadian Select, which historically was between 12 and 15, uh, is now at 27.

Is there any reason for this? We're gonna pull up, uh, the board for First West Texas.

This is the October contract, uh, at 101.70, uh, and, uh, we'll take a look at Western Canadian Select.

Uh, yesterday it had the close done before it.

Let me just look.

It's, um- That's where, that's where it's at.

So, you know, like places that are having a tougher time accessing it, they're paying a lot more than, than even what's showing on the screen there at, you know, like when, uh, Brent and, and West Tex- West Texas Intermediate are showing a different number and Western Canadian Select, right? So, so expect-

And yesterday

... more of this pain.

Like look...

I mean, it's a windfall right now for, you know, Canadian companies too.

Western Canadian Select at $93.

Who'd have thought you saw $93 for Western Canadian Select? $93.48 actually for Western Canadian Select.

What does it mean for Canada? A resurgence of Venezuelan oil production could cut into Canada's heavy oil market share.

Even growth of a few hundred thousand barrels would compete head-to-head in Gulf Coast refineries and could result in a widened differential or discount between the West Texas Intermediate benchmark crude price and the Western Canadian Select crude price.

As such, it is a threat that should be taken seriously.

That said, the global oil market is cutthroat and highly competitive, and Canada is constantly competing to retain and grow its market share from Venezuela and dozens of others.

Like I told you last time, you know, the world is much more resilient in terms of a supply system to oil and gas shocks compared to what it was 30 years back, right? So if you look at the nature of the shocks that this was there this time, 20 million barrels approximately, right, getting kind of like disrupted, quite frankly, you know, it did not disrupt, right, the supply side that much, not significantly.

And a lot of things have got to do with obviously how China adapted in terms of using its reserves, how some of the oil was rerouted, right, instead of Hormuz through the pipelines to Saudi Arabia and Red Sea and, you know, UAE through the pipelines, how new sources became more available from Guyana to Western Canadian Select.

So if you combine all these things together, the net effect was not that significant as it should have been for a 20 million barrel loss.

That's a big shock if you look at the numbers, right? So the resilience in the system is much more today than it was, you know, 30 years back.

The decline rates shoot back up, capital costs spike, and those pristine margins compress rapidly.

Second, there's the notorious price volatility of Western Canadian Select, or WCS.

Heavy crude inherently trades at a discount to WTI because it requires complex, expensive refining and blending with lighter condensates just to flow through a pipeline.

When regional Canadian pipelines bottleneck, or when major refineries in the US Midwest go down for maintenance, that WCS discount blows out aggressively.

Even if global WTI is sky high, a blown-out differential can absolutely destroy Headwaters' realized prices.

And finally, integration risk.

You can track this in their quarterly management discussion and analysis.

If they're pumping too much water relative to oil, it means their decline rates are going to miss expectations and capital efficiency is degrading.