Friday, 14 December, 2018

Oil 'crisis' not on first ministers' meeting agenda; premiers demand a change

9:26am


Oil tanker rail cars in Regina sit on the city's central tracks on Nov. 19 2018. Evan Radford/980 CJME 9:26am Oil tanker rail cars in Regina sit on the city's central tracks on Nov. 19 2018. Evan Radford/980 CJME
Laurie Berry | 06 December, 2018, 09:38

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.

Western Canadian Select, the heavy oil benchmark in Canada, soared almost 37 per cent on the news, up to around US$30 per barrel, according to Bloomberg data, with the blend trading in the low $20 range below the USA crude, compared WITH $32 before the announcement.

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 USA oil traded on futures markets.

Saskatchewan Premier Scott Moe said in a statement that the province isn't considering following Alberta's example. "Ottawa's failure in this area has left Alberta's energy producers with few options to move their products, resulting in serious risks for the energy industry and Alberta jobs", the Alberta government says.

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

Demand for condensate, a very light oil blended with thick oil sands crude so it will flow through pipes, is expected to fall as producers cut heavy output, analysts say.

Producers will be allowed to choose where they cut production, allowing them to shut in their least lucrative barrels to make up their cut quota, instead of having to cut across the board, Alberta said. We may see that they're successful in decreasing the differential more significantly as we adjust to what the impact actually is.

The current glut is due in part to pipeline bottlenecks.

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An improvement in Canadian oil prices would also help smaller producers like Baytex Energy and Crescent Point Energy, which need higher oil prices to support their operations.

So, Notley's short news conference Sunday evening was a bravura performance.

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.

She adds that the curtailment of oil production in Alberta isn't something new either.

"That said, we understand the actions being taken in Alberta and will be working with our industry partners to ensure Saskatchewan is not undermining these efforts".

The initial curtailment of 325,000 barrels per day is expected to drop over the course of 2019, with an estimated average of 95,000 barrels a day once excess storage is cleared. This is especially true if companies with their own US 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.

"Some firms had already announced reductions in extraction ahead of the Alberta government's mandated production cuts which are set to take effect next year".

Rory Johnston, commodity economist at Bank of Nova Scotia, said the WCS surge seemed "more or less right", but that "we're not used to seeing the market price in such a definitive change in supply so quickly". "I was at her Christmas party on Sunday night so we had a good chance to chat about it".

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