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Buy Canadian Heavy Oil Producers As The WCS-WTI Discount Narrows


  • Buy Canadian heavy oil producers on the back of investor complacency and narrowing differentials.
  • We explain the long-term tailwinds for Canadian heavy oil producers despite negative headlines.
  • There are multiple near-term catalysts over the next several months which will boost investor sentiment.

Welcome to the Buy Canadian Heavy Oil Edition of Oil Markets Daily!


Canadian heavy oil producer equities have diverged greatly from the recent improvement in Western Canadian Select prices or WCS. The discount between WCS and WTI continues to narrow, allowing knowledgeable investors to take advantage of the complacency in Canada.

Investors allocating capital to heavy oil producers in Canada will also benefit from a long tailwind of lower heavy oil production from Mexico and Venezuela, two key suppliers for US. This will provide more tailwind for higher Canadian heavy oil demand in the years ahead, and once crude by rail capacity increases, the discount will narrow even more boosting sentiment and trading multiples.

Given the small uncertainty surrounding the WCS to WTI discount situation, we think now is the time to buy Canadian heavy oil producers.

These are the names investors should consider:

Other potential alternatives include Suncor Energy (SU) and Canadian Natural Resources (CNQ).

WCS to WTI Discount Narrowing

Last week, we published an article on Gear Energy and how it's now too cheap to ignore. The 2.8x EV/DACF trading multiple is a 47% discount to peers, and this multiple will only move lower as the discount between WCS and WTI narrows.

Since the Keystone outage in November that pushed spreads from $13/bbl to $30/bbl in early February, the discount has now narrowed to sub $20/bbl.

You can see in the chart above how the next 3 months have narrowed significantly since last week. The narrowing also comes on the back of no additional crude by rail capacity increases, and it is likely due to Keystone returning closer to full capacity. Third-party estimates still show Keystone operating below 100% due

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