Economy

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

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

Western Canadian Select catapulted to US$32.91 a barrel on Monday morning, up around US$11 from Friday's close, as the market immediately priced in the impact of Alberta Premier Rachel Notley's plan to draw down the province's crude backlog via production cuts.

Because of that, Alberta, which is the heart of Canada's oil sands region, ordered producers to cut output by 325,000 BPD until oil storage levels there start falling, which represents 8.7% of the country's current production rate. The move is meant to combat steep discounts now placed on Alberta oil.

He also mentioned that, with the price differential between Western Canadian Select and West Texas Intermediate, some companies are making a lot of money in the refining side of the industry, even if they're not making much in production. Alberta's oil is now fetching bargain basement prices thanks to a growing glut and lack of pipeline capacity to get oil to market.

Canada is the world's fifth-largest oil producer, with most of it centered in Alberta's oilsands.

Canada's oil production is at a record 4.6 million barrels a day, but producers can not get oil to market because the pipelines that cross into the United States are full.

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Canadian condensate demand is about 650,000 barrels a day, of which 350,000 bpd is produced domestically with the rest imported from the United States.

Very. This is a rare move for a market economy like Canada, but it is not the first time an Alberta government has mandated cuts.

Saskatchewan and Alberta are asking Prime Minister Justin Trudeau to do something about oil prices.

Bank of Montreal economists Benjamin Reitzes and Robert Kavcic predicted in a research note Monday that gross domestic product could expand by 1.8 per cent next year, instead of the 2 per cent forecast previously, if there are extended shutdowns in the oil sector.

"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", said Moe.

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The province pegs losses due to the oil discount at around $80 million per day, though estimates vary.

"We request that Energy Market Access and the Economic Impacts of the Price Differential be added as an agenda item for discussion this week". It's about jobs there. The biggest gap - US$52 per barrel - was recorded in October.

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. That's on top of mounting concern that the country's regulatory framework makes it very hard to get much-needed pipeline projects approved. Husky Energy Inc., which owns refineries in Canada and the US, said in an emailed statement that a government-ordered curtailment or other interventions can possibly have negative investment, economic and trade consequences. "It does not face the same differentials".

Notley is meeting with her cabinet to issue the necessary orders to direct oil producers to begin backing off on oil production by 8.7 per cent starting January 1.

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