Wheels in motion on oil cut

Wheels in motion on oil cut

Wheels in motion on oil cut

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. "Should OPEC-plus reinstate cuts at their confab later in the week", she wrote, "we could see further upside in global oil benchmarks, including Canadian grades".

Dave is joined by Calgary Herald business columnist Chris Varcoe.

The Railroad Commission of Texas did something similar in the 1930s, before OPEC was created, because large oil producers at the time were anxious that independent drillers were over-supplying the market.

The losers include integrated producers who will likely pay more for their refining feedstock and companies that had meant to grow their production in the first half of 2019, it said.

"In Alberta, we believe that markets are the best way to set prices", Notley said, "But when markets aren't working, when companies are forced to sell our resources for pennies on the dollar, then we have a responsibility to act, to defend our province and to defend our resources". WCS now stands at around US$29 a barrel, and sells at a US$23.85 discount to the USA benchmark, a sharp improvement from a record US$50 differential earlier this fall.

Heavy oil prices sank to less than $15/bbl last month, as rising production swamped existing pipelines and rail routes, forcing some producers to shut in output. The government said the reduction will be evaluated monthly.

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

The move is not unprecedented - in 1980, Tory premier Peter Lougheed forced oil production cuts to protest the federal Liberals' national energy program.

Alberta Premier Rachel Notley and her cabinet have put the legal wheels in motion to begin cutting oil production.

Rory Johnston, commodity economist at Bank of Nova Scotia, said the WCS surge seemed "more or less right", but that "we're not used to seeing the market price in such a definitive change in supply so quickly".

The mandated cut ends on December 31, 2019. Imperial Oil CEO Rich Kruger said the government thus "introduced a new risk", while Husky Energy spokesman Mel Duvall warned the mandatory reduction might have "serious negative investment, economic and trade consequences", according to local media. The province estimates 25 producers will have to impose cuts. Shares of oil producers operating in Alberta also surged, with Cenovus posting its biggest intraday gain ever.

An improvement in Canadian oil prices would also help smaller producers like Baytex Energy and Crescent Point Energy, which need higher oil prices to support their operations.

"But you can imagine that in an America First policy, as presented by the president of the United States, we could be in for some type of counter measure against our increased price".

Carlo Dade, an expert on Canada-U.S. trade at the Canada West Foundation, doesn't think Alberta's curtailment violates the North American Free Trade Agreement, which is still in effect.

Moe pointed out the market for Saskatchewan oil is different from Alberta's, because 60 per cent produced here is in the light to medium range, as opposed to the heavier product coming out of the oil sands.

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