EDMONTON - Forget those scary headlines about the possibility of Iran re-entering global oil markets and driving prices down.

Even if it happens — and that’s still a big if — the world’s sixth-biggest oil producer will first have to jump through a lot of hoops before the U.S. and the European Union consider easing their restrictions on Iran’s oil exports.

“The oil embargoes remain in place with Iran and I feel they will remain in place for some time,” says Patricia Mohr, Scotiabank’s commodity guru. “A lot of the media stories this week gave people the wrong idea completely.”

Besides, Canadian energy producers face the more tangible and immediate threat of soaring oil output in the U.S., which remains virtually the only export market for Canada’s own growing supplies of landlocked crude oil.

The threat isn’t new. I’ve been writing about it since early last year, when major U.S. investment banks began cranking out bullish reports on growing U.S. energy production. At the time, the Alberta government seemed keen to play down the threat, with former finance minister Ron Liepert’s rosy 2012 pre-election budget calling for a steady ramp-up in oil prices and budget surpluses through 2015.

Liepert’s projections appeared designed, even then, to present a deliberately sugar-coated view of the future. Now his assumptions look as far-fetched as the prospect of an Oilers’ Stanley Cup run this NHL season.

Instead of climbing, crude prices have sunk. They hit a six-month low Wednesday in New York, as steadily rising U.S. output topped eight million barrels a day, the highest mark in nearly a quarter of a century.

With crude stockpiles rising by nearly three million barrels last week — several times the consensus estimate — to 391.4 million barrels, they’re now at the highest level for this time of year since the U.S. Energy Information Administration began keeping weekly records 30 years ago.

“This was a very bearish report,” Tim Evans, an analyst at New York-based Citi Futures, told Bloomberg. “With growing U.S. crude oil production, refiners are finding it harder to manage their stockpiles. They’re holding a lot more than is necessary for a high level of refinery activity.”

Although U.S. refineries have picked up the pace, pushing utilization rates to a two-month high, that has yet to curb the growth of crude inventories, which have gone up for 10 straight weeks.

“Refineries are coming out of maintenance but operations aren’t high enough to make a dent in supplies,” Chip Hodge, of Manulife Asset Management, told Bloomberg. “The refining system isn’t set up for this. We will have to start thinking of exporting crude, which will make for an interesting political discussion.”

That’s one way to put it. Explosive is another.

The U.S. ban on crude exports, in place since the 1970s, will be very tough to overturn, even though it has effectively locked in North American supplies, leading to fat discounts on West Texas Intermediate (WTI), the benchmark U.S. grade, versus Brent, the key international grade.

Brent crude for January delivery closed Wednesday at $111.31 per barrel in London. That’s about $19 a barrel or 20.5 per cent higher than the WTI price. Western Canada Select (WCS), Alberta’s benchmark blend of bitumen and heavy oil, currently fetches just $66 Cdn per barrel or $62.30 US, nearly $50 below the current Brent price.

“North American crude is largely landlocked. So the story for North America is the rapid development of light, tight oil in the U.S. — particularly in North Dakota’s Bakken play, and also in the Permian Basin in northwest Texas,” says Mohr.

The resulting glut has spread from Cushing, Oklahoma, the key U.S. storage hub, all the way down to the Gulf Coast, where light oil inventories are also building, resulting in the growing WTI price discount to Brent crude.

“It’s actually quite a big development. Light crude prices across North America are de-linking from international levels,” Mohr says. “On the U.S. Gulf Coast the price of light crude used to be almost identical with Brent, but it’s now being discounted because of these rising supplies.”

Don’t expect the trend to reverse any time soon. Indeed, Mohr expects the WTI discounts to persist and even widen in coming years, which means the downward pressure on prices for Alberta’s heavy oil and bitumen will only intensify.

But it’s not all bad news, she notes. Since many U.S. refineries have been retooled to process heavier grades of crude, they will continue to rely on imports from Alberta’s oilsands.

“Despite the shale oil revolution in the U.S., they still need to import heavy crude, and there is very strong demand in the Houston refining market and the U.S. Midwest for heavy crude or bitumen from Alberta,” she says.

“So although bitumen took a hit this year from high discounts off WTI prices, I think it’s going to find a solid home in the U.S., and therefore the companies that are producing heavy grades of crude as well as bitumen will be rewarded for doing that.”

Let’s hope she’s right.

glamphier@edmontonjournal.com