Goldman Reiterates Positive Outlook on Suncor, Canada Pacific, Phillips 66 Amid Widening Western Canadian Crude Differentials

Goldman reiterates its supportive outlook on Suncor Energy (SU), Canada Pacific (CP), Phillips 66 (PSX) and Marathon Petroleum (MRO) as these companies will benefit from widening Western Canadian heavy crude oil differentials.

Western Canadian heavy crude oil differentials have re-widened from a period of seasonally tighter spreads in the second quarter amid a faster-than-anticipated production ramp, planned refining downtime and slower-than-expected demand absorption by rail, Goldman Sachs said.

“We currently forecast WTI-WCS differentials of $23, $22 and $25 per barrel in 2018, 2019 and 2020, respectively, but current light-heavy spreads of $30 a barrel point to upward risk to our view, particularly given an accelerated production ramp profile at Suncor’s Fort Hills,” Goldman Sachs said.

Suncor is viewed as the “best” way to position in a wider differential environment, given the integrated nature of its asset portfolio and consequent protection from light-heavy volatility, the bank said.

While Canada Pacific is seen as the best positioned rail to capture upside from a shortage of Canadian pipeline capacity, the bank said.

In large cap refiners, Phillips 66 and Marathon Petroleum are expected to benefit from a wider WTI-WCS differential environment given their ability to run large volumes of discounted Canadian crude as a percentage of refining feedstock, the bank said.

The bank remain negative on Imperial Oil (IMO) despite its share repurchase program, as the company remains highly exposed to wider Canadian oil spreads.