A tailings pond reflects the Syncrude oilsands mine facility near Fort McMurray, Alta., Wednesday, July 9, 2008. A production shutdown due to a power outage at Syncrude Canada’s oilsands mine near Fort McMurray, Alta., is expected to free up pipeline space out of Western Canada and ease discounts on pricing for heavy oil. (Jeff McIntosh/THE CANADIAN PRESS)

Syncrude outage expected to boost heavy oil prices

A production shutdown at one of Canada’s largest oil sands facilities is expected to drive up the prices for Canadian heavy oil while freeing up pipeline space for exports of oil products from Western Canada.

Syncrude Canada has said its oilsands mine north of Fort McMurray, Alta., could remain offline through July after a power outage late last week forced the company to stop production of upgraded bitumen.

Canada is the world’s fourth-largest oil producer and could lose as much as 10 percent of its supply in July as a result of the power outage at the facility in Fort McMurray, which can produce up to 360,000 barrels per day.

The outage will tighten Canadian supplies and reduce the crude flow to Cushing, Oklahoma, the delivery point of the U.S. crude futures contract, traders said.

In a research note, Tudor Pickering and Holt analysts called last week’s power outage “another operational hiccup.” Meanwhile, the outage could result in some upside for Western Canadian Select oil prices.

“From a broader perspective, downtime at Syncrude should free up some capacity on a tight pipeline system, with any available space likely to be soaked up by heavy barrels on Enbridge’s Mainline, driving a near term tightening of WCS pricing,” according to the Tudor, Pickering and Holt note.

The Syncrude outage potentially puts Cushing on a path to an “inventory stockout,” Goldman Sachs said in a research note on Sunday.

“This loss of U.S. supplies will exacerbate the current global deficit, making the increase in OPEC production all the more required.”

With files from The Associated Press and Reuters

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