Why Alberta’s Oil Sands Producers Are Waiting on $100 Crude and Ottawa’s Fine Print

Crude prices have whipsawed from $70 to $100 per barrel and back to the high $80s in the span of two months, and Alberta’s biggest oil sands producers are sitting on their hands. Rather than commit capital, they are telling investors to wait until regulatory promises are in writing and price stability returns. Click here to listen to the full interview.

The Oil Sands Standoff: Three Reasons Producers Are Holding Back

We see three distinct reasons behind the pause in Alberta oil sands spending. First, the MOU pipeline option likely carries carbon sequestration costs that the Bridger proposed pipeline alternative does not. Producers are perhaps considering that cost before committing. Second, price volatility itself is a deterrent. Crude has moved from $70 to $100 per barrel and back to $88 in a matter of weeks, leaving the market outlook unsettled from an investor’s perspective. Third, despite the MOU, regulatory certainty is still required in writing before operators commit capital. Our recent look at Alberta’s West Coast pipeline options walks through how these routing and carbon cost trade-offs are shaping producers’ decisions. We expect price to resolve much of this uncertainty over the next quarter or two.

The $10 to $15 Gap Between Spot Prices and Our $100 Call

WTI traded at $83.77 and Brent at $89.24 as of the time of writing, yet we firmly think prices should be at triple-digit levels given current OECD crude and product inventories. Based on those figures, our view is that crude is discounted $10 to $15. EIR believes markets price stock levels, not flows. Those prices, in turn, motivate flows. The disconnect has been driven by a mix of Chinese buying behavior, rumors of irregular trades and the physical release of roughly 150 million barrels tied to the U.S.-Iran ceasefire memorandum. However, all factors are beginning to reverse as a material amount of supply remains offline.

Crude Is the Noise Right Now, Product Prices Are the Signal

Even with crude pulling back, drivers have not caught a break. Gasoline and diesel are effectively pricing in $110/bbl and $160/bbl, respectively, while crack spreads are implying a margin that’s double the cost of crude. We attribute this to ~7-10 MMbbl/d of refining capacity being offline because of Ukrainian strikes on Russian infrastructure and the Iran/U.S. war. The return of this capacity depends on the outcomes of the two wars, which could take years to determine.

We expect some relief at the pump as driving season winds down heading into fall, but the U.S. government should begin to taper releases from its Strategic Petroleum Reserve, under what has been committed. This will push crude prices higher and cracks lower – but not to pre-war levels. Our March analysis on eroding global supply guardrails remains applicable now: The product market, crude, is where we think fundamentals are properly priced.

What We Heard in Asia: “Higher for Longer” Is Becoming Consensus

Asian buyers are increasingly looking at 2027 pricing as an entry opportunity, while governments are curious about pipeline and LNG developments for Canada, viewing Middle East and Qatari supply as increasingly uncertain. Our assessment of how Middle East disruptions are rippling through global markets helps explain why Canadian supply is drawing international attention right now, even as domestic producers stay cautious.

Key Takeaways

Why are Alberta’s oil sands producers holding back on spending despite high crude prices?

Producers are weighing carbon sequestration costs embedded in the MOU pipeline option against a lower-cost southern alternative. Besides dealing with two months of swinging crude prices, oil companies are waiting for clarity on how CCUS costs will be embedded in pipeline tolls. Until regulatory commitments are in writing, capital will stay on the sidelines, in our opinion.

Why does EIR still see $100 oil as the right call even with Brent near $88?

We believe crude is discounted $10 to $15 relative to what physical stock levels imply, largely because of a one-time 150-million-barrel crude and product release tied to the U.S.-Iran memorandum, choppy Chinese buying behavior and suspicions of irregular trading activity are all weighing on bullish investor confidence. With six to eight million barrels a day of Middle Eastern supply still shut in and demand proving remarkably resilient, fundamentals will prevail and oil prices should march higher.

What changed for Canadian energy investment after the Strait of Hormuz disruption?

International buyers are now studying proposed Canadian pipelines and LNG developments, treating Middle East and Qatari supply as less reliable. This shift is reshaping how Canadian oil sands and LNG capacity are valued abroad.