Oil production cuts could mean a positive return locally

A processing unit at Suncor Fort Hills facility in Fort Mc Murray Alta on Monday

A processing unit at Suncor Fort Hills facility in Fort Mc Murray Alta on Monday

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. Western Canada Select (WCS) has plunged below $15 per barrel, representing a discount to WTI that has hovered at around $40 per barrel.

About 25 Alberta producers are expected to be impacted by the cuts until the 35 million barrels of oil now in storage are shipped out of the province.

The Western Canadian province of Alberta this week announced mandated temporary oil production cuts, a rare move aimed at bolstering sagging crude prices caused by rising production that has outstripped pipeline capacity and led to a glut in storage.

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.

Premier Scott Moe said he understands the actions of Premier Rachel Notley's government and supports it, but that the policy of curtailing production in Saskatchewan "just won't be productive", in part because it would cost jobs and be ineffective.

Oil prices rose on Monday, buoyed by coordinated production cuts - cuts that did not come from Vienna (although that too could occur later this week).

Rory Johnston, analyst at Scotiabank in Toronto, said the cuts could narrow the discount for WCS to around US$20 in the first quarter of 2019, down from an earlier estimate of around US$29.

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Output of raw crude oil and bitumen will be reduced initially by 325,000 barrels per day.

"As proposed, the meeting agenda does not include any discussion on the crisis facing the energy industry and the price differential that is crippling the Alberta, Saskatchewan and Canadian economies".

"We continue to believe that relief from additional pipeline capacity is the most viable (and sustaining) method of getting Albertan (Canadian) production to market, but that this will help in the near term", it added, citing the rail deal.

He said Notley's decision was courageous given the lack of consensus among industry players over whether the province should intervene.

To be sure, the Canadian government has had its hand in the energy industry before.

"With the government stepping in the way they did, companies are going to be far more inclined to have significant capital programs in 2019 so they can be ready to move that oil in 2020", said Alex Pourbaix, chief executive of Canada's third largest oil producer, Cenovus Energy. However, the Imperial and Husky companies said Friday that they opposed non-voluntary production cuts but supported the rail investments because that could help improve market access. Shares of oil producers operating in Alberta also surged, with Cenovus posting its biggest intraday gain ever. "It would be great if they joined with us".

Canada produces some 4.6 million bpd and exports about 3.3 million bpd to the United States, about 99 percent of Canada's total crude exports. "The more we can get on board the better". The cuts will be spread among companies producing at least 10,000 bpd, based on average production. The reduction would drop to 95,000 barrels a day by the end of next year.

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