Alberta orders oil production cut to deal with price differential
Alberta orders oil production cut to deal with price differential
Canadian heavy crude strengthened the most since June
04 December, 2018, 14:42
The government says the reduction will be in force until excess storage is drawn down, after which it will drop to an estimated average of 95,000 barrels a day.
Output of raw crude oil and bitumen will be reduced initially by 325,000 barrels per day. NY time Monday, the tightest it's been since July, data compiled by Bloomberg showed. WTI itself climbed as much as 5.7 percent, the biggest intraday gain since June, to $53.85 a barrel.
Not all the producers were happy with the Notley's order, with critics arguing that the markets can deal better with prices.
Alberta Premier Rachel Notley is following the advice of producers like Cenovus Energy Inc. and Canadian Natural Resources Ltd., which have been hammered by record low prices for heavy Canadian crude, which at one point were $50 a barrel less than USA grades.
"Every Albertan owns the energy resources in the ground and we have a duty to defend those resources", said Notley.
Announcing the measure on Sunday, Premier of Alberta Rachel Notley said that the province is "facing a hard challenge", but the move is aimed to reverse an unprecedented price gap that has seen the province's crude sell for significantly less than the global price.
The reduction is expected to narrow the differential by at least $4 per barrel, and would add an estimated $1.1 billion in Alberta government royalties in the 2019-20 fiscal year. After that, the government will work to match capacity with production. More rail capacity could ease the midstream burden as well.
Canada has the world's third-largest oil reserves and is the top source of foreign oil for the U.S. Among refiners, HollyFrontier Corp. dropped as much as 6.3 percent in NY and Imperial Oil Ltd. declined 4.4 percent in Toronto. Notley thanked them both in her speech.
"Many of these policies (were) supported either by acquiescence or actively by the NDP government", said Kenney.
"We have set out a 10,000 barrel [a day] exemption for all producers". Each company's level of curtailment will be based on six months of its highest level of production over the past 12 months, according to the statement. The province estimates 25 producers will have to impose cuts.
Alberta's pipeline woes have spurred governments to seek out ways to help get their oil to market.
Notley announced the province will impose across-the-board cuts amounting to 8.7 per cent of output to reduce a growing glut of oil that is forcing Alberta oil to sell at steep discounts compared with the North American benchmark.
Reaction to the curtailment from United Conservative Party leader Jason Kenney and Alberta Party leader Stephen Mandel was swift.
About the only dissenting voice has come from Canada's integrated oil companies, whose refineries have been benefiting from the cheaper feedstock.
The decision by Notley to curb oil supplies marks the most substantial market intervention in decades, and comes after discounts for Canadian heavy oil breached US$50 in recent months, the highest on record.
Dan McTeague with GasBuddy.com says B.C. drivers shouldn't be anxious about to fill up their vehicles because our gasoline is made up of a blend of many different oils.
Pourbaix's statement says the measures will help balance the market for now until new rail and pipeline capacities become available. That plan entails running two additional trains a day, each pulling 100 to 120 cars. At present, 97 percent of Canadian oil exports go to the US, which is awash with oil.
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