In general, I agree with Mr. Cross's views earlier, that in the oil industry in particular there's a tendency to equilibrate prices between different markets because of the largely arbitrageable nature of the products. Oil from one place can largely be substituted for oil from another place, although that depends somewhat on the quality of the products. Among bitumen, heavy crude, and light crude, there is normally going to be a differential between the qualities or grades of crude, as opposed to a differential between different markets. Then transitory supply and demand imbalances within particular markets, given the constraints of pipeline capacity or refining capacity or changing market demand, can cause them to rise one way or another.
To the extent that the Canadian discount we saw reach peak levels months ago, we contributed to it in the sense of our expansion beyond what the market could absorb of the lower grades of product, bitumen being obviously the lowest grade. The heavier crude had a smaller degree of Canadian discount, and that reduced the price of our Canadian exports relative to both benchmarks, so there was the differential versus other crude prices in that continental U.S. market we are tied to. Then the overall price in that market, in part again because of our own actions, was reduced relative to the global price.
I will point out that the Keystone pipeline and other pipelines going to the U.S. will not affect at all the second of those differentials in the discount on prices in the U.S. market relative to world crude. In fact, by some reckonings, it could make it worse by enhancing even further the supply going into that one market.
How long-lasting would that be? Other factors were at play. Obviously, the expansion of the U.S. unconventional crude production was one. Transitory refining issues were another. These are some of the reasons the discount has narrowed in recent months. How long the discount will last is obviously a matter of speculation.
I think the lesson for us should be, though, that there are risks involved in Canada as a nation putting too many eggs in the basket of unprocessed resource exports. What happened with shale oil has happened recently with shale gas. What happened with shale gas has happened with other staples we have produced in waves over our history. This is where I think it makes sense for us to take a longer-term view and elevate the goal of enhancing value-added production at all stages of the production process as part of our goal.
We don't export beaver pelts anymore and it isn't because we ran out of beavers. It's because the market for the product disappeared. Exactly the same threats have hindered our export of other staples through our history, and there's no reason to believe bitumen will be any different.