Canada's Alberta province orders drastic oil production cuts to fight price crisis

Irving Hamilton
December 4, 2018

"You get there by next spring, which is very quick", said Michael Tran, analyst at RBC Capital Markets in NY.

The discount of Western Canadian Select crude to USA benchmark West Texas Intermediate oil narrowed $9.25 to $19.75 a barrel as of 10:11 a.m. The inability to build a major pipeline has put a ceiling on midstream capacity, and the bottleneck has swelled over time, ultimately leading to the latest announcement from Alberta ordering the shutdown of some oil supply. The mandated cut ends on December 31, 2019.

"We need to do more and we're moving forward on fixing this system and moving forward on (the) Trans Mountain pipeline expansion in the right way", Sohi added.

"It makes no sense for Alberta to stand by while it's valuable oil resources sell for next to nothing, the provincial treasury loses up to $100-million a day, job losses continue to mount, and our industry suffers billions of dollars in long-term value destruction".

Bank of Montreal also cut its Alberta 2019 GDP growth forecast in half, from 2.4 per cent to 1.2 per cent. However, they said the production cuts will be felt much harder in the first quarter of the year, when they first come into force - and they will have a much harsher effect on Alberta's economy. Imperial Oil CEO Rich Kruger said the government thus "introduced a new risk", while Husky Energy spokesman Mel Duvall warned the mandatory reduction might have "serious negative investment, economic and trade consequences", according to local media.

Shares in the companies most likely to benefit from the move to curtail crude production starting January 1 soared Monday as oil price differentials plunged.

Kenney, leader of Alberta's opposition United Conservative Party, said Saskatchewan should also cut production.

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Asked whether that grievance was over a woman, Mr Willing said: "We will allege that that is part of the process". SBS reported that New South Wales Police arrested the man at Parramatta, Western Sydney this morning.

On Sunday, both Cenovus and Canadian Natural issued statements of support for the Alberta move, as did Chinese-owned oilsands producer CNOOC-Nexen. The group, led by Saudi Arabia and more recently Russian Federation, is set to meet in Vienna on December 6 and 7.

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.

A chorus of companies, investors and industry leaders has rallied to the idea in recent weeks, saying that no other measure could help work down the glut of oil backed up in storage as quickly. In Alberta, the impact could be much higher, between 0.6 per cent and 1.3 per cent over the same period. But she has said that rail cars, new pipelines and increasing domestic refining capacity would not bring relief soon enough. The Alberta government plans to reduce the size of the cutback significantly after three months, and plans to remove the production restrictions entirely at the end of next year.

The production curbs will provide some cushion for producers, but will not eliminate the discount on heavy Canadian oil that has persisted for many years, said Jihad Traya, manager at energy consultancy firm Solomon Associates LLC in Calgary. NY time Monday, the tightest it's been since July, data compiled by Bloomberg showed.

"We don't actually need Ottawa's sympathy. As a result we must sell our oil at a discounted price", said Notley.

The unprecedented move by the country's largest oil-producing province is aimed at easing the crisis in the nation's energy industry.

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