[jasonturbo]

If the Province of Alberta was able to move all the oil it produced to market there not be such a massive price delta between WTI and WCS. Why is this so hard for people to understand?

Imagine for a minute that you are a chicken farmer, you make a living selling eggs.

There are a total of 10 chicken farmers in your community, each farm produces 10 eggs per day, for a total daily production of 100 eggs. The immediate community consumes 10 eggs per day, the other 90 eggs are shipped to small towns within the county.

The shipping of eggs occurs through a delivery service that everyone shares, the delivery truck has a limited range, it can only deliver within the county limits. The delivery truck is only a transport service, they do not market or distribute eggs on behalf of the farmers, it is up to the farmers to sell their eggs. At this point the market is balanced, supply is equal to demand.

Then, through the miracle of capitalism, two of the egg farmers manage to increase their daily egg production by 5 eggs each, bringing the total number of eggs for "export" to 100 per day, 10 more than the existing demand within the county. This is a positive supply shock which results in negative or insufficient demand, there is no longer a balanced market.

All of a sudden the price of eggs starts to fall, the excess of available eggs has resulted in price competition among farmers who want to be sure that their daily supply of eggs will be sold. So the farmers drop their prices to secure contracts with the available consumers, however, even with reduced prices the demand does not change, and surplus of eggs develops in the farming town.

Eventually two things happen:

1. The price of eggs reaches a bottom, a point at which one or more farmers refuse to sell their eggs for less than x dollars, which will likely happen well below the point of profitability.

2. The number of eggs in storage reaches maximum capacity and there is no longer customers to purchase eggs or space to store new eggs.

What is the solution to this problem? For most normal people it should be fairly obvious, increase access to consumers by expanding the delivery service to new markets outside of the county limits.

Chicken Farmer - Oil Producer
Eggs - Oil
Community - Alberta
County - The existing customer base (Canadian refiners and approximately 3.3M BBL/Day of existing pipeline capacity to the USA)
Delivery Truck - Pipelines

Global supply and demand balances out with oil around 50$/BBL, that price is based on a consumer anywhere in the world buying oil from a producer located anywhere in the world. However, Canada is so restricted in our ability to move oil to global markets, we play the role of chicken farmer living through an egg surplus with a delivery vehicle that can't make it beyond the county line.

Oddly I didn't expect this thread to be focused on the price of oil, this isn't a major issue, what is a major issue (IMO) is our universally-terrible universal health care and the thousands of mentally ill drug addicts wandering around the lawless society that is East Van that receive virtually no meaningful assistance.