Though many recent headlines regarding Western Canadian Select (WCS) pricing levels have focused on the Canadian heavy benchmark reaching unparalleled lows, the numbers often quoted by mainstream media and even politicians might be painting an inaccurate picture of the actual pricing. 

In fact One Exchange Corp., which is a leader in voice and electronic brokering for the North American natural gas and crude oil markets and which supplies data for the CanOils Consolidated Crude Index (CCI) published by the Daily Oil Bulletin, said some price quotes publicly made may not be accurate as the providers of that information are not using the WCS calendar month average (CMA).

As an example, last Monday it was reported on a national broadcaster’s website that WCS gained 20 cents to trade at $4.59/bbl that afternoon.

That’s in contrast to the CanOils CCI for May delivery numbers published that day in the DOB’s Market Briefing, where WCS settled Monday at US$18.38 below the WTI-CMA. The implied value was US$12.24/bbl.

Tyler Hartwell, a broker assistant with One Exchange, said that in calculating what is known as the fixed price for a bbl of Canadian crude the methodology is different than what is generally assumed or being currently published.

“Each grade of Canadian crude is transacted based off a differential against West Texas Intermediate (WTI). The difference in how mainstream media has calculated the fixed price of Canadian crude versus the value that is  ultimately invoiced by the producers and refiners in the industry comes from the use of the WTI calendar month average, not a futures contract price which can be vastly different,” he said.

Perry Undseth, president of One Exchange, said the WTI CMA came into play as refiners wanted to buy their crude based off a CMA to marry up the pricing of their feedstock to the sale of their refined products, which was generally sold on a CMA basis.

The CMA is derived by taking the average settlement of the prompt month WTI daily settlements during a given calendar month and the following futures month contract settlements, thus giving the producer or refiner a market price of the daily WTI settles for the entire calendar month — not the futures contract month that has already been priced and is being quoted by mainstream media. For example, in the May calendar month, the June WTI futures contract is the front month from May 1 to 20, and the July futures contract will be the front month from May 21 to 31. The May CMA (calendar month average) is a combination of these daily prompt WTI futures settles from May 1 to 31.

In order to calculate the fixed price for a Canadian barrel of crude a differential must be applied to the corresponding calendar month. For example, if the current May WCS differential is trading at -$14.75, and the May WTI CMA is sitting at US$29.10, a fixed price for a bbl of May WCS comes out to US$14.35.

As you can see in the below chart there are distinct differences in the values between the straight WTI settlements and the WTI CMA settlements:

“One more thing to note when considering the netback pricing for Canadian producers is the $US/$C exchange rate. Because of the inverse relationship between the price of WTI and the USD/CAD rate, the current collapse of WTI has helped strengthen the U.S. dollar even more against the Canadian dollar, which does slightly help offset the deep discount pricing of our Canadian barrel of oil,” Undseth said.