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

Alberta Premier Rachel Notley Orders Oil Production Slashed To Fight Price Crisis

Alberta will force oil producers to cut production by just shy of nine per cent staring next year to try to create scarcity by clearing the current stockpile and raise the price of Alberta crude.

Notley announced Sunday that starting January 1, 2019, the production of raw crude oil and bitumen in Alberta would be temporarily cut by 8.7 per cent, which works out to 325,000 barrels a day.

The price differential between Western Canadian Select and West Texas Intermediate has fluctuated in recent weeks, peaking at around US$36 (C$47) a barrel. In fact, the price differential between Canadian oil and the US benchmark oil hit a record high of $50 per month last month.

About 25 Alberta producers are expected to be impacted by the curtailment until the 35 million barrels of oil now in storage are shipped out of the province.

A wider-spread collapse in oil prices could wash away much of the gains from Alberta's production cuts, several analysts said Monday.

Opposition United Conservative Leader Jason Kenney said Notley made the right decision.

Rachel Notley calls the move "a short-term measure" amid pipeline bottlenecks.

Shares of Canadian oil producers are skyrocketing on Monday, led by Canadian Natural Resources (NYSE: CNQ), Cenovus Energy (NYSE: CVE), Baytex Energy (NYSE: BTE), and Crescent Point Energy (NYSE: CPG), which were all up double digits by 10:00 a.m. EST.

A new threat looms for Canada's largest oil producing province, even as it imposes mandatory output cuts to ease a glut that has driven down crude prices. The cuts will then drop to 95,000 bpd until December 31, 2019.

Alberta's price cut is rare but not unprecedented - in 1980, Tory premier Peter Lougheed forced oil production cuts to protest then-prime minister Pierre Trudeau and his Liberal government's national energy program.

"The amount of oil that is being diverted to storage is at record highs and storage is nearing capacity", the Alberta government says.

"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. The monthly curtailment levels will be provided through an order that will expire at the end of 2019, and the Alberta Energy Regulator will be tasked with implementing the system.

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. That narrower discount is now much more likely given the production cut.

More broadly, the slide in US oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown.

"If we put into place the appropriate mid-term and long-term remedies, hopefully we'll be getting pipelines and won't need to have this sort of intervention", Tertzakian said in an interview.

"What's good for the residents is that if we can get more money for our oil and for our gas, it'll be more money in the civic offers, which we've in the past have used as a dividend for property taxes or to build things like the Leisure Centre or Event Centre", Clugston added.

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