Published: Thu, December 06, 2018
Money | By Ralph Mccoy

Canadian Heavy Crude Surges After Alberta Imposes Oil Cuts

Canadian Heavy Crude Surges After Alberta Imposes Oil Cuts

Alberta Premier Rachel Notley announced Sunday the province will require companies producing more than 10,000 barrels per day of oil to cut back by about 8.7 per cent (a total of 325,000 bpd) until there is enough shipping space on pipelines to improve prices, expected to take about three months.

New-York-traded West Texas Intermediate (WTI), delivered at Cushing, Okla., is the benchmark price for light crude oil in North America.

Notley said that she expects the cuts to remain in place until the 35 million barrels of oil now sitting in storage because of what she describes as "unsustainable" transportation bottlenecks are shipped to market.

Moe said that while he agrees there is an unacceptably high differential for Alberta oil, "a government-mandated production cut in Saskatchewan could result in a loss of jobs and economic activity in our province, but would have little impact on the price of oil because it would disproportionately impact conventional oil production, which is not the problem".

But Saskatchewan's overall outlook for oil prices remains positive.

DePratto expects the production cuts to reduce Canadian real GDP growth by between 0.1 per cent and 0.2 per cent in 2019.

The heady days of US$100 oil aren't expected any time soon, but Canada's heavy crude should continue to perk up in 2019 and 2020, according to a report from CIBC Capital Markets. It said 90 per cent of its oil production is either in the USA, or is downstream of the recent apportionment points which are impacting prices, so it's average selling price hasn't been as impacted as other companies. Afterwards, the cut will be reduced to 95,000 bpd, to remain in place until the end of next year.

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Alberta's decision to mandate output cuts to reduce a supply glut will have negative effects on North American producers of lighter oil used for blending and USA refiners importing crude via rail, even as several major Canadian energy companies cheered the move.

Moe said Saskatchewan's oil industry differs from Alberta. We may see that they're successful in decreasing the differential more significantly as we adjust to what the impact actually is.

Alberta, as a hopelessly oil-dependent petrostate, is flailing about, looking for a solution to the pipeline bottleneck.

The production curbs will provide some cushion for producers, but will not eliminate the discount on heavy Canadian oil that has persisted for many years, said Jihad Traya, manager at energy consultancy firm Solomon Associates LLC in Calgary. "This is a short term measure", Notley said.

MacNaughton says he also noted for Craft that getting the Keystone XL pipeline finally approved through the US would also help with Alberta's problems. Alberta is now looking to buy trains to move oil out of the province. Sohi had last week asked the National Energy Board about ways to make Canada's pipeline system more efficient. This is especially true if companies with their own USA refining capacity, like Husky Energy Inc., Imperial Oil Ltd. and Suncor Energy Inc., decide to squeeze their own workers till the pips squeak to punish the government for reducing their profit expectations for the greater good. That's on top of mounting concern that the country's regulatory framework makes it very hard to get much-needed pipeline projects approved.

Notley called the production cut a hard decision because there is not consensus in the industry. "It would be great if they joined with us".

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