Alberta to Cut Oil Production, Crude Prices Rise

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

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

The meeting was called to hash out legal directives to give the Alberta Energy Regulator the power to direct oil producers to cut production by 8.7 per cent starting January 1.

The bottom has fallen out of the Canadian oil market this year ever since the Federal Court of Appeal overturned a decision by the central government to approve the Trans Mountain pipeline, which drove the Canadian oil discount to new highs relative to its U.S counterpart West Texas Intermediate.

"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.

Notley said that she expects the cuts to remain in place until the 35 million barrels of oil now sitting in storage because of what she describes as "unsustainable" transportation bottlenecks are shipped to market.

Oil production cuts announced by the Alberta government will have the desired outcome of reducing steep price discounts on western Canadian crude, but will also create winners and losers, financial analysts say. "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.

The Enbridge Line 3 project, shipping more oil from Alberta to the U.S. Midwest is expected to come online late next year.

Price differential: Canada's heavy crude usually trades at a discount because of refining and transportation costs, so a price gap or differential is typical between WTI and WCS.

The plan, which would end December 31, 2019, is expected to reduce the differential by at least US$4 per barrel relative to where it would have been otherwise.

A rule taking effect in 2020 aimed at reducing pollution by cutting the sulfur content of maritime fuel will make sulfur-heavy oil sands crude less desirable. They're seeing the differential hurting their prices.

"As excess crude capacity is drawn from storage and supply is no longer a price taker, we can expect further improvement in WCS and Canadian crude differentials", wrote Joan Pinto, associate and energy specialist at CIBC.

He said the provincial government has been working on this problem for a while, and consulted with members of the oil industry in the province. "This is a short term measure", Notley said. Indeed, it soon became clear to anyone listening thanks to a reporter's question that the Opposition UCP had demanded even deeper production cuts. Shares of oil producers operating in Alberta also surged, with Cenovus posting its biggest intraday gain ever.

Calgary's major integrated companies - those that both produce and refine oil - including Suncor Energy Inc., Imperial Oil Ltd. and Husky Energy Inc., said in statements they remain opposed to the cuts. "We are recognizing that there are going to be some unpredictable consequences and they are going to try and monitor it closely".

"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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