Alberta Production Cuts Send Canadian Crude Soaring

Alberta premier announces 8.7 per cent oil production cut to increase prices

Western Canadian Select's discount to WTI expanded to US$50 a barrel last month, the widest spread in more than a decade, amid pipeline bottlenecks and reduced demand from USA refineries undergoing maintenance.

The opposition leader said he agrees with Notley's action; the UCP's Jason Kenney says Alberta should have never been in this situation to begin with, criticizing Ottawa for killing pipeline projects. The hope is that by forcing oil companies to cut production, it will ease the regional oversupply that has put significant pressure on prices.

Notley says as of January there will be an 8.7 per cent reduction ordered in oil production. We should store our production when prices are down, or temporary bottlenecks occur, and then sell back into the market when things are back in balance.

The losers include integrated producers who will likely pay more for their refining feedstock and companies that had meant to grow their production in the first half of 2019, it said. After all, the carbon tax was conjured up in order to smooth the path for new pipelines - the logic being that a carbon tax and other incentives to boost renewable energy would buy the "social license" to operate, and might convince the USA government to greenlight Keystone XL.

The letter says the meeting's current agenda does not include any discussion of a crisis facing the energy industry. She has also aggressively campaigned for pipelines in every direction - she championed the Trans Mountain expansion pipeline that would run west, the Keystone XL pipeline that would run south, and the now-defunct Energy East pipeline that would have run to the east. The restriction will come into effect in January and will be in place until December 31, 2019.

It costs about $22 to ship crude via rail from Alberta to the Gulf, market sources told Reuters. Whitecap Resources Inc. wasn't part of these consultations, but Fagerheim said he admires how much the provincial government does consult with the industry.




Still, the rail cars will take time to procure and bring into operation. The province expects the 325,000-barrel-a-day reduction to be in place for the first three months, while storage is drawn down to historical levels.

A lack of access to markets is one of the reasons the Western Canadian Select price has dropped.

Official U.S. government oil production and inventory data is due later on Wednesday. The discount shank to as much as $19.75 a barrel earlier in the day, the tightest since July. The province expects the curtailment to affect about 25 producers. "We interpret the phrasing of the announced cut as keeping production down 50 kb/d [year-on-year] in 2019 and 200 kb/d below our prior assessment with the greatest impact on 1Q19 (down 225 kb/d quarter-on-quarter) before new rail capacity gradually comes online from April onward", Goldman Sachs wrote in a note.

The energy sector gained nearly four per cent and higher gold prices helped the materials sector to rise more than two per cent.

Bank of America Merrill Lynch said in its 2019 economic outlook, published on Tuesday, that "most major economies are likely to see decelerating activity", although it added that "a steady stream of monetary and fiscal stimulus measures" was expected to stem the slowdown.

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