New transportation facilities and processing capacity are expected to narrow the discount between WCS-WTI crude oil in the second half of 2014. The differential is expected to remain widen till 2H 2014. The new transportation facilities include new rail facilities, heavy refining capacity, and pipeline transport connections, said London based Barclays in its weekly report.

The WCS-WTI differential improved to around -$35/bbl last week, after reaching - $42 on November 5, as refineries in the US and Canada remained offline and production from oil sands projects exceeded ample takeaway capacity.

New processing and takeaway capacity should be able to handle incremental heavy oil supplies and ease the heavy discount, though probably not until the second half of 2014.

Refinery outages widened the WCS-WTI differential to as high as $42 on November 5. On October 23, fire damaged a vacuum distillation unit at Citgo’s Lemont refinery, coinciding with planned maintenance at Suncor’s Upgrader 2 vacuum tower, the report said.

The Lemont refinery’s slate consists of about 50% Canadian heavy sour crudes. The second reason why the differential has continued to widen and has remained below -$25/barrel since the beginning of September is increased oil sands production.
Source: Barclays