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Canadian producers push back as Alberta orders oil cuts

December 05/2018

MOSCOW (MRC) -- Several oil companies in Canada pushed back on Monday against Alberta’s mandated cuts in crude production, warning about excessive government intervention even as the discount on Canadian crudes narrowed sharply on the curtailment plan, said Hydrocarbonprocessing.

Alberta Premier Rachel Notley said on Sunday the government would force producers to cut output by 8.7 percent, or 325,000 barrels per day (bpd), until excess crude in storage is reduced. The move is unusual for a market economy like Canada, in comparison with members of the Organization of the Petroleum Exporting Countries whose oil companies are often state-owned.

Prices for Canadian grades of crude oil moved sharply upward Monday, narrowing the deep discounts they had been trading at, relative to their U.S. counterparts. While producers said they would comply with the mandatory cuts, executives from Canada’s Suncor Energy Inc, Husky Energy Inc and Imperial Oil, integrated producers with domestic refinery and upgrading capacity, expressed disappointment.

“We believe the market is working and view government-ordered curtailment or other interventions as possibly having serious negative investment, economic and trade consequences,” said Husky in a statement. However, major producers like Cenovus Energy Inc and Canadian Natural Resources Ltd were vocal with their support.

Canada is one of the world’s largest oil producers, supplying more than 4.2 million barrels a day, but WCS prices slumped in October to a discount of more than USD52 a barrel below WTI due to the transportation constraints and storage glut. Heavy Western Canadian Select oil traded at a USD25 a barrel discount to U.S. crude on Monday, compared with a USD32 discount on Friday. Light synthetic crude from the oil sands settled at USD17 below the benchmark, USD8 narrower than Friday.

Following the cuts, Pourbaix said Cenovus expects discounts closer to USD20 a barrel in 2019, supporting investment of C1.5 billion (USD1.1 billion) in 2019, in line with 2018 capital spending. “That would not have been the case if the government hadn’t take action,” Pourbaix said.

Suncor is assessing the impact of the government’s announcement, it said, noting that the market is the most effective means to balance supply and demand and normalize differentials. “Less economic production was being curtailed and differentials were narrowing as a result of market forces,” Suncor said in a statement, adding that specific effects from the cuts will be discussed in its upcoming 2019 outlook.

Imperial Oil CEO Rich Kruger said the company was reviewing the impact on its investments. But CNRL cheered the Alberta government’s move, noting “these are unprecedented times and they call for urgent action.” Nexen, a subsidiary of CNOOC Ltd, said the actions would help strengthen the Alberta economy.
Author:Anna Larionova
Tags:gas processing, petrochemistry, Crude oil, Canada.
Category:General News
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