Published: Tue, December 04, 2018
Finance | By Loren Pratt

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

There was a collective sigh of relief from many investors and companies following the recent carnage caused by a massive discount on Canadian oil.

Alberta Premier Rachel Notley has announced a temporary 8.7 per cent cut, or decrease of 325,000 barrels a day, in the production of raw crude oil and bitumen starting Jan 1, 2019. NY time Monday, the tightest it's been since July, data compiled by Bloomberg showed.

Meanwhile, shares in oil producers who had been either benefiting or insulated from the discount prices stayed put or subsided.

Not all the producers were happy with the Notley's order, with critics arguing that the markets can deal better with prices.

Alberta's intervention also comes just after a sharp nosedive in global oil prices last month, prompting the Organization of Petroleum Exporting Countries to consider cutting as much as 1.3 million barrels per day of production, according to news reports.

Premier Scott Moe said Monday afternoon that he understands and supports the actions taken by the Alberta government to address the glut of oil, but the situation is different in Saskatchewan. That will keep the discount narrow and add back that production. Notley said the government has a duty to protect resources as they are owned by every Albertan.

And the premier showed enough steel to demonstrate she has no problem pushing around the few billion-dollar oil companies that made it clear they don't want supply management of their output, seeing as they're making out like bandits already with things the way they are. "We must act immediately, and we must do it together".

Imperial CEO Rich Kruger warned of the danger of "unintended consequences" of the production cuts, including to competitiveness and trade.


The measure could be removed earlier than the end of 2019, based on market conditions, the government said.

Instead, the mandatory reductions were handed down by the provincial government of Alberta. After that, the government will work to match capacity with production. More rail capacity could ease the midstream burden as well. Among refiners, HollyFrontier Corp. dropped as much as 6.3 percent in NY and Imperial Oil Ltd. declined 4.4 percent in Toronto.

"This is a time for unity and for resolve", said Notley on Monday. The province estimates 25 producers will have to impose cuts.

The first 10,000 bpd for each producer will be excluded from the mandatory cuts, meant to avoid negatively impacting small producers. Kenney also said the oil crisis isn't specific to our province and he thinks Saskatchewan should follow Alberta's lead in curtailing production to help close the price gap.

About the only dissenting voice has come from Canada's integrated oil companies, whose refineries have been benefiting from the cheaper feedstock. Western Canadian Select (WCS) is the reference price for heavy crude oil from the oilsands. Prices could get back to the level where it pays to move the marginal barrel on rail, according to analysts. The system would require a total of about 80 locomotives and more than 7,000 cars.

For Pourbaix, the idea of government-imposed action was sparked earlier this fall when the price differential between WCS and USA benchmark crude prices topped US$40 a barrel.

Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone.

To contact the reporter on this story: Kevin Orland in Calgary at korland@bloomberg.net. Off-topic, inappropriate or insulting comments will be removed.

Like this: