Former Doug Ford strategist Nick Kouvalis posted a short tirade on X where he described Alberta’s oil as being sold at a discounted “friends and family” rate to the United States and demanded the prices be raised to what he feels are market prices.

What the U.S. pays for Alberta’s oil is literally the market price. As is common with Eastern commentators, Kouvalis has a gross misunderstanding of how oil and gas pricing works.

To begin with, Western Canadian Select (WCS) is a different product than the West Texas Intermediate (WTI) oil, which is often used as a benchmark for North American oil pricing. WCS is a heavy, sour (sulphur-laden) oil that needs expensive upgrading and is more difficult to transport than the lighter WTI.

Refiners must offer a lower price for the feedstock they will have to invest extra dollars into to create marketable products.

It’s not that Alberta’s oil isn’t of great value, but it’s different. Not all crude oil is equal. Hyundai and Lexus both produce cars, but the prices vary due to the quality of the cars. Raising the prices of Hyundai vehicles to the level of a Lexus wouldn’t level the playing field. It would bankrupt Hyundai.

Raising prices of WCS to WTI would just drive American customers to seek oil from competing sources, and the world is full of them.

The other factor in the pricing differential is market access. Even with the Trans Mountain Pipeline expansion, well over 90% of Alberta’s oil exports still end up being sold to American customers. When you only have a single customer for your product, the customer can dictate the price to a degree.

When the pipelines to export are near capacity, producers compete for space by lowering their prices. The competition is only on the supply side.

The differential narrowed marginally with the expanded capacity of the Trans Mountain Pipeline, but the line still doesn’t offer nearly enough ability to supply overseas markets if the intent is to reduce the differential. Only new and larger pipelines can accomplish that, and those have been throttled by Canadian regulations for decades.

Kouvalis is comparing apples to oranges while demanding Alberta sacrifices its industry to make an ineffective point of principle. He appears to have little understanding of how the economy and markets work. And that is reflected in the state of finances in Ontario, where he used to advise Premier Ford on such matters.

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