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Alberta oil cuts may not mean spike at the pump in BC

08 December 2018
Alberta oil cuts may not mean spike at the pump in BC

Notley has ordered a mandatory 8.7 per cent cut in oil production to reduce a glut of Alberta oil that is forcing steep price discounts.

Western Canadian Select, or WCS, has been trading at a discount of more than $40 a barrel to the USA oil price benchmark, WTI, because the country is now producing 190,000 barrels per day (BPD) more oil than its pipeline system can handle.

Oil prices were pressured by a weekly report from the American Petroleum Institute (API) that said U.S. crude inventories rose by 5.4 million barrels in the week to 30 November, to 448 million barrels, in a sign that USA oil markets are in a growing glut.

Under current conditions, Alberta is producing 190,000 barrels of crude oil and bitumen per day over what can be now shipped out using pipeline, rail and other means. Saskatchewan has no oil sands in active production and we are more diverse in what we produce.

The UCP had proposed 10 per cent production cuts, but Kenney said he didn't want to "quibble over the numbers".

The premier announced the cut on Sunday.

Canada's main stock index began the week higher as Alberta production cuts helped to lift oil prices to their largest gain since June, while investors felt relief from a preliminary trade truce between the USA and China. The discount has typically been around $15, but has widened in recent months, hitting a record at $52.50 below WTI in October, according to data from Shorcan.

The heady days of US$100 oil aren't expected any time soon, but Canada's heavy crude should continue to perk up in 2019 and 2020, according to a report from CIBC Capital Markets.

"What we now have is a serious glut in oil, which can't be resolved until OPEC gets together on Thursday and decides to cut back along with Russian Federation and a few other producing nations".

"We've got challenges with respect to pipelines, we've got challenges with respect to rail and now we've got challenges with respect to our demand market", Allan Fogwill, CEO of the Canadian Energy Research Institute said at a presentation in Calgary Wednesday.

The bounce helps to explain the Canadian dollar strength today.

He said the status quo on Canadian oil shipping can not continue, but defended his government's record on pipelines and the oil industry, noting the recent $4.5-billion purchase of the Trans Mountain pipeline in a bid to get it expanded despite political controversy.

The government should immediately assess what natural underground storage capacity exists or can be readily created in Alberta. Alberta said last week that it would buy locomotives and rail cars to add an additional 120,000 bpd of crude by rail capacity.

He noted that southeast Saskatchewan oil, in particular the Bakken, is not affected by the same price differentials as in Alberta.

But the Court of Appeal sided with environmentalist and indigenous opponents of the project in an August ruling, leading the federal government to give up fighting and darkening the outlook for investment, oil prices and the Loonie.

There will be an exemption for the first 10,000 barrels of oil produced, a measure that is meant to protect some smaller companies working in the province.

The provincial government says that differential is costing the national economy more than $80 million a day.