The provincial government in Alberta has announced that it is easing mandatory oil curtailments as prices for heavy crude surge.
The government of Premier Rachel Notley announced that its new target for output in February will be 3.63 million barrels a day, up from 3.56 million in January. Inventories dropped by five million barrels, easing a glut that had contributed to depressed prices.
The discount at which heavy Canadian crude currently trades to the U.S. benchmark widened after the announcement to $9.50 a barrel from $8.60 previously. Alberta began curtailing production at the start of January as the oil-sands industry grappled with its worst ever pipeline bottleneck. But producers balked at the curtailment, saying that it was hurting profits.
Canadian Natural Resources (TSX:CNQ), which supported the production cuts when they were first announced, told service companies in recent weeks that it may have to shut its crude pipeline because new rules for determining quotas would leave too little oil to operate the line.
Integrated oil producers such as Exxon Mobil Corp.’s (NYSE: XOM) Imperial Oil Ltd. (TSX:IMO), which can process crude locally in refineries, argued that the cuts amounted to government overreach and would shake investor confidence in the province. The easing announced late Wednesday may give local heavy crude prices a boost relative to Maya crude from Mexico, according to analysts.
Western Canadian Select crude that traded at a $50 discount to U.S. benchmark West Texas Intermediate last October narrowed the gap to less than $9 before Wednesday’s announcement by the Government of Alberta. That level wouldn’t cover the cost of sending oil by rail to the U.S. Gulf Coast. The Alberta cuts had tightened supply from Canada at the same time that the Organization of the Petroleum Exporting Countries and its allies reduced exports.
