Alberta orders oil production cut to deal with price differential

06 December, 2018, 09:37 | Author: Brooke Harris
  • Alberta premier announces 8.7 per cent oil production cut to increase prices

"Between now and next winter the Western Canadian oil market is at the mercy of rail schedulers and their attempts to mobilize more locomotives, tank cars, and trained crews-an effort that has thus far proved insufficient to clear the market".

- Buoyed by Alberta government's intervention to support oil prices.

Heavy oil prices sank to less than $15/bbl last month, as rising production swamped existing pipelines and rail routes, forcing some producers to shut in output.

The oil-rich Canadian province announced a plan Sunday to force producers reduce output by 8.7%, or 325,000 barrels per day (bpd), effective January 1, 2019, until the excess crude in storage is drawn down.

Alberta's pipeline woes have spurred governments to seek out ways to help get their oil to market. The mandated cut ends on December 31, 2019.

The market price for Alberta oil rebounded Monday, but the discount Canadian producers have to stomach compared with the price their US counterparts get is still north of $30 a barrel.

Oil prices have been sagging, with US crude recently dipping to near $50 a barrel on renewed oversupply fears.

Alberta's government on Sunday announced a 325,000 barrel per day production cut due to massive bottlenecks in pipelines heading to the United States.

Moe said he understands the actions of Premier 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.

Canada's federal government had been attempting for some time to build a new pipeline called "Trans Mountain" that it claimed would enable the nation to export more oil to worldwide markets, instead of sending all of it to the U.S.

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"The expected rebound in production later in the year should contain the full-year 2019 GDP impact and potentially lift 2020 slightly, depending on timing", it added, adjusting its national growth forecast for 2019 to 1.8 per cent from 2.0 per cent. Alberta is now looking to buy trains to move oil out of the province.

Meanwhile, shares in oil producers that had been either benefiting or were insulated from the discount prices were little changed. NY time, data compiled by Bloomberg show.

Notley called the production cut a hard decision because there is not consensus in the industry. Moe said he spoke to Kenney directly about the issue, but did not take Kenney's advice.

Oil is important for Canada because crude and its derivatives are the nation's largest export. "It'll be interesting to see how long it's going to take to draw that inventory down". The impact on timing remains unclear.

Fagerheim said there are key differences between oil in the two provinces that means a similar initiative in Saskatchewan wouldn't do much.

"We don't actually need Ottawa's sympathy".

The Alberta government has ordered a mandatory cut to crude oil production next year to deal with historically low prices being paid for Canadian oil.

The Pound-to-Canadian-Dollar rate was -0.60% lower 1.6807. Texas-based Valero averaged about 30,000 bpd of Canadian crude by rail in the third quarter, it said.



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