Published: Thu, December 06, 2018
Markets | By Noel Gibbs

Canadian oil made a almost 50% move today

Canadian oil made a almost 50% move today

I would like to commend Premier Rachel Notley and her government for making the hard but necessary decision to implement a temporary mandatory oil production cut in Alberta.

Notley recently announced that her province will cap oil production starting in January, in order to reduce the glut that experts say depressed prices.

The problem for Alberta - and for Canada - is that after a decade of trying, the region is still no closer to building a major oil pipeline to move product to either the United States or to the Pacific Ocean.

The discount between Western Canadian Select bitumen-blend oil and New York-traded West Texas Intermediate varied between US$19.75 per barrel and US$22.25 on Monday, an improvement over Friday's US$28.50 settlement price, according to Net Energy.

Alberta, as a hopelessly oil-dependent petrostate, is flailing about, looking for a solution to the pipeline bottleneck. If Saskatchewan followed the Alberta model, and all producers over 10,000 bbls/d were curtailed by 8.7 per cent, the curtailment would total 25,484 bbls/d.

While the rest of the world sells its oil at about $50 per barrel, Notley has said Alberta fetches only $10. Last month, oil sands producers asked the Premier to mandate industry-wide production cuts.

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Moe said the decision was made "upon the advice from industry".

The Alberta government has ordered a mandatory cut to crude oil production next year to deal with historically low prices being paid for Canadian oil.

"We have a fairly good sense of what we need to do to clear the market, and clear storage", Notley said, adding the decision was "very hard".

Alberta Energy Minister Marg McCuaig-Boyd said they've also talked to Saskatchewan about the cuts and are working together to resolve the price quandary. It's about jobs there.

What's more, most of the impacted output rides direct links into the US, the world's biggest consumer.

Canada's Federal Court of Appeal halted the contentious Trans Mountain pipeline expansion that would almost triple the flow of oil from the Alberta oil sands to the Pacific Coast - a setback that came just as the federal government bought the project to help ensure it gets built amid strong environmental and aboriginal opposition in British Columbia.

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"We will continue to work with industry to make sure that this curtailment is done in a way that is most effective, and that is responsible, and ensures that we don't curtail one extra drop more than we need to", said Notley. A mandated cut would have little impact on price, but would prompt job losses and a decline in economic activity, he said.

Oil prices slumped by around 2 percent on Wednesday, pulled down by swelling US inventories and a plunge in global stock markets as China's government warned of increasing economic headwinds. "It does not face the same differentials".

Suncor said in its release on Monday that it is assessing the government's decision and will map out details of the impact when it releases 2019 capital and production forecasts.

The Alberta government said it believed industry would not voluntarily make the cuts after sending three envoys to talk to small and large producers.

Global oil giants like the U.S., Russian Federation and Saudi Arabia that command the attention of traders had some unexpected company on Sunday: a province of less than 5 million people in Western Canada.

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