By Nia Williams

(Reuters) – The Trans Mountain oil pipeline expansion (TMX) was intended to reduce the discount on Canadian oil compared to U.S. crude, but three months after starting commercial operations, the differential is wider.

Many analysts had predicted that the differential on Western Canada Select (WCS) versus U.S. crude would gradually narrow to single digits due to an additional 590,000 barrels per day (bpd) of export capacity offered by TMX.

Currently, WCS for delivery in Hardisty, Alberta, is trading around $15 per barrel below benchmark West Texas Intermediate (WTI) oil, compared to $11.75 below U.S. crude on May 1, the first day of operations. WTI has recently fallen to under $74 per barrel.

Oil firms in Canada, the world’s fourth-largest crude producer, have faced years of production outpacing pipeline export capacity, resulting in bottlenecks in Alberta. Despite the extra capacity from TMX, the anticipated price boost has yet to occur.

During recent earnings calls, Cenovus Energy (NYSE:CVE) and Canadian Natural (NYSE:CNQ) attributed the lack of price improvement to factors including increased competition on the U.S. Gulf Coast from Mexican heavy crude imports and U.S. refinery outages, notably at ExxonMobil’s 251,800-bpd Joliet plant.

Nonetheless, executives remained hopeful about a narrowing WCS discount in the coming months. “Over the next little while, I would say we expect Trans Mountain to continue to have its intended impact in Alberta and differentials to be as narrow as they have been in a long time,” remarked Geoff Murray, Cenovus’s executive vice-president.

RBC Capital Markets analyst Greg Pardy noted that pipeline egress from western Canada appeared to be running smoothly, though elevated inventory levels in some U.S. regions could be an issue.

Weak demand from major sour crude consumer China is also impacting global heavy oil grades, with Rory Johnston, founder of the Commodity Context newsletter, suggesting that expectations for TMX to significantly reduce WCS differentials may have been overstated.

He stated, “The main value of TMX wasn’t really a low WCS differential but rather a vastly lower probability of another differential blowout, which, fingers crossed, we still aren’t going to see here even if we’re back above $15.”

Before TMX’s operational start, Canadian producers faced congestion on export pipelines that could lead to WCS “blowouts,” where discounts spiked to over $40 per barrel below U.S. crude, costing millions in revenue.