Economy

Alberta orders oil production cut to deal with price differential

Alberta orders oil production cut to deal with price differential”

Saskatchewan Premier Scott Moe said the province isn't going to cut oil production despite being asked to by Alberta's opposition leader Jason Kenney.

Alberta Premier Rachel Notley has announced a temporary 8.7 per cent cut, or decrease of 325,000 barrels a day, in the production of raw crude oil and bitumen starting Jan 1, 2019.

The price discount between Western Canadian Select (WCS) and West Texas Intermediate (WTI) has fluctuated in recent weeks, reaching around C$45 a barrel.

"These resources are owned by Albertans and Canadians and we're at a real unfair advantage selling at such a discount as we are and losing the amount of revenues we're losing", says Petrone.

"Even before these revisions our forecasts were below consensus for Canadian GDP based in part on the dampening effects of slower global growth on the oil patch and other sectors", says Shenfeld.

Announcing the measure on Sunday, Premier of Alberta Rachel Notley said that the province is "facing a hard challenge", but the move is aimed to reverse an unprecedented price gap that has seen the province's crude sell for significantly less than the global price.

While Alberta's plan to mandate OPEC-style production cuts already is boosting oil prices and shares, the revival of Canada's resource nationalism adds another layer of risk for investors to consider.

The change in Alberta would affect his company by about 600 barrels of oil a day, said Fagerheim. 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. As the excess storage clears, the reduction is expected to drop to 95,000 barrels a day until the end of next December.

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

Four days earlier, Notley announced the province would be buying up to 80 locomotives and 7,000 rail cars as the first measure to address the glut.

Energy Minister Marg McCuaig-Boyd said if Saskatchewan had made a decision to curtail oil, it wouldn't have changed Alberta's path forward. Husky Energy Inc., which owns refineries in Canada and the USA, said in an emailed statement that a government-ordered curtailment or other interventions can possibly have negative investment, economic and trade consequences.

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.

Share prices of Canadian companies that drill condensate, a light oil used for blending with heavy Canadian crude, hit multiyear lows on Tuesday, as demand is likely to fall as a result of the cuts, BMO Capital Markets analyst Randy Ollenberger said in a note.

More broadly, the slide in USA oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown. "They've seen ups and downs - they've never seen anything like this before", he told CTV's Power Play on November 28.

"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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