Canadian oil and gas producers, on the other hand, must continue to contend with volatile price differentials. Some companies have done a much better job than others in hedging their exposure and/or finding alternative means to get their output to market. Others produce primarily light-sweet crude oil, which usually commands a better price than heavier varietals and is less expensive to deliver to end-markets.

Expect these wild swings in oil prices to weigh on some operators’ ability to grow their reserves and production while maintaining their dividends.

Price differentials improved significantly in the third quarter–a boon for upstream-only companies. However, integrated oil companies such as Suncor Energy (TSX: SU, NYSE: SU) and Cenovus Energy (TSX: CVE, NYSE: CVE) tend to hold up reasonably well when price differentials widen because of their well-positioned refineries.

With the price spread between WCS and WTI jumping to $39 per barrel in the fourth quarter, meeting production targets, executing hedging strategies and managing credit lines will be critical.

Oddly enough, natural gas will remain a bright spot for many Canadian producers, at least in comparison with horrific 2012. But the price gap between Canadian gas at the AECO hub and both WCS and WTI crude oil is still certain to keep most producers shifting ever-more drilling activity toward liquids.

Separating the Wheat from the Chaff

Companies that produce primarily light-sweet crude oil, which requires less processing and is easier to ship, will feel the pressure of widening differentials but not to the same extent as outfits that produce heavier crude oils.