Canada oil producers get 6pc 1Q lift on weaker currency

Spanish Market: Crude oil
01/04/25

A depreciating Canadian dollar is giving oil sands producers an extra lift and complementing relatively strong domestic crude prices to help weather tariff concerns.

The Canadian dollar, on average, was worth C$1.44 to one US dollar in January-March 2025, weakening from C$1.35 to the greenback in the same quarter 2024, according to the Bank of Canada. That represents a more than 6pc advantage to Canadian producers selling crude in US dollars who then turn those earnings around to pay workers and suppliers in local currency.

The outright price for heavy sour Western Canadian Select (WCS) at Hardisty, Alberta, settled at $58.67/bl in the first quarter this year, according to Argus data. This is only $1/bl higher than the same period last year, but with the now weaker Canadian dollar, that converts to over C$84/bl for producers who would have seen that under C$78/bl in the first quarter 2024.

The Canadian dollar, on average, was worth C$1.37 to the US dollar in 2024, weakening from C$1.35 to the greenback in 2023 and the weakest annual average since 2003.

The Bank of Canada largely attributes the sliding Canadian dollar to a rising foreign exchange rate risk premium, which relates to holding currencies other than the US dollar. This premium rises with uncertainty that has been amplified by US president Donald Trump's tariff actions in recent months, and that has also weighed on currencies from other economies, hitting developing countries' currencies harder than those of advanced economies.

Also keeping the US dollar elevated is the US Federal Reserve's recent caution about resuming its cycle of cutting interest rates, thus attracting relatively more investors to US Treasury bills and boosting demand for US dollars. Canada meanwhile has brought its target rate lower to try to get ahead of an anticipated economic slowdown.

The Fed's Federal Open Market Committee (FOMC) on 19 March held the federal funds rate unchanged at 4.25-4.50pc for a second consecutive meeting after cutting at the last three meetings of 2024. The Bank of Canada a week earlier lowered its overnight rate for the seventh consecutive time to 2.75pc.

Giving a more obvious boost to Canadian producers in the first quarter this year compared with a year earlier have been the appreciating domestic crude prices relative to the US light sweet benchmark, which has weakened across the same period.

WCS trades at a discount to the Nymex WTI calendar month average (CMA) and that gap has narrowed on the back of new export pipeline capacity out of Canada, added in May 2024. WCS traded at about $12.75/bl under the WTI CMA across the first quarter this year, compared with a $19.25/bl discount a year earlier.

More recent trade activity shows WCS for April-delivery narrowing further yet to within $10/bl under the basis — the tightest since April 2021 — with oil sands producers temporarily shutting in some production to embark on major maintenance.

By Brett Holmes

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04/04/25

WTI crude falls near 4-year low on trade war: Update

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Tariffs and their impact larger than expected: Powell

04/04/25

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Trump talks up tariff deals as markets slide

04/04/25

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WTI crude falls to 4-year low on escalating trade war

04/04/25

WTI crude falls to 4-year low on escalating trade war

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IMF says tariffs a significant risk to growth: Update

04/04/25

IMF says tariffs a significant risk to growth: Update

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