Sunday, 16 December, 2018

Alberta Premier Rachel Notley Orders Oil Production Slashed To Fight Price Crisis

Premier Scott Moe speaks on the new USMCA deal in Saskatoon Premier Scott Moe speaks on the new USMCA deal in Saskatoon
Orlando Vargas | 06 December, 2018, 09:42

Premier Rachel Notley is ordering a mandatory cut to oil production to deal with a price crisis she says threatens to gut Alberta's bedrock industry.

Because of that, Alberta, which is the heart of Canada's oil sands region, ordered producers to cut output by 325,000 BPD until oil storage levels there start falling, which represents 8.7% of the country's current production rate.

Western Canadian Select's discount to US benchmark West Texas Intermediate narrowed $6 to $23 a barrel as of 3:51 p.m.

The steep discount has stripped billions of dollars from the Canadian economy by some estimates, and at one point Canadian oil was selling for more than $50 less than US oil traded on futures markets.

Alberta now produces 190,000 barrels a day more than can be shipped and has twice the normal levels of oil in storage - a total of 35 million barrels.

"It should always be kept in mind that oil is a global industry, and moves in the benchmark WTI price can outweigh changes in the spread, leaving Canadian producers in the lurch", said Brian DePratto, a senior economist at TD Bank Group.

The premier made the announced in Edmonton on Sunday, adding that the federal government was to blame for the high oil price differential that has driven the price of Alberta crude to almost $45 below the world price for oil.

The government of Alberta is taking action to ease a regional glut of oil brought on by the continued delays of much-needed oil pipeline projects.

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Canadian crude producers saw a spike in early trading Monday, as did heavy oil prices.

The production curbs announced by Alberta targets producers that pump out more than 10,000 bpd, or just 25 of the roughly 300 oil companies now operating in the province. They're seeing the differential hurting their prices. That gap hit around $50 in late October due to a lack of pipeline capacity to get Alberta oil to market.

- Canadian Dollar rises broadly as oil markets rebound on Monday.

Watch below: (From Dec. 3, 2018) For the first time in a generation, the Alberta government will impose a cap on the amount of oil that industry is allowed to produce.

"We are at an historically crucial point in terms of how tight this infrastructure is", Oberstoetter said. The reduction would drop to 95,000 barrels a day by the end of next year.

While the government isn't helping with the rail vehicle purchase and had no new funds for oil and gas in its fall fiscal update, Natural Resources Minister Amarjeet Sohi did reveal on Friday that he had asked the National Energy Board to evaluate whether Canada's pipelines are being used to their full capacity. Alberta is now looking to buy trains to move oil out of the province. "They've seen ups and downs - they've never seen anything like this before", he told CTV's Power Play on November 28. 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.

"A crisis of this magnitude must be reflected in any discussion on "economic competitiveness.' We trust that the agenda for our upcoming first ministers" meeting can be revised to better reflect the need for a substantive discussion on issues of critical importance to the Canadian economy".

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