Alberta Premier Rachel Notley is ordering a mandatory cut in oil production to deal with a storage glut and price crisis that is costing Canada an estimated $80 million a day.
"You get there by next spring, which is very quick", said Michael Tran, analyst at RBC Capital Markets in NY. Western Canada Select crude's discount to USA benchmark West Texas Intermediate oil narrowed on Monday to the tightest since July.
The discount between Alberta's WCS and the benchmark WTI was about US$25 per barrel on Tuesday. "It further reinforces the need for Canada to increase exports of our oil and natural gas to existing and new markets, which will ultimately help meet global demand and expand our customer base". With WTI also climbing $2.18 today, it's a dramatic move. In August, Ottawa bought the Alberta-to-B.C. Trans Mountain pipeline from Kinder Morgan Inc., but a court ruling has halted construction on the project. As oil prices began to decline, Nuttall said, investors began "hate selling" the stocks when they could no longer stand to see the red on their screens every day.
Some in the industry say the move is a step in the right direction while others say it undermines investments already made to improve market access.
International Brent crude oil futures were at $61.37 per barrel at 0240 GMT, down 71 cents, or 1.1% from their last close.
Shares in the companies most likely to benefit from the move to curtail crude production starting January 1 soared Monday as oil price differentials plunged.
Analysts said that means the market is already halfway to the provincial goal, estimating that between 130,000 and 160,000 bbls/d has already been shut in, mainly by Cenovus and Canadian Natural. This is especially true if companies with their own USA refining capacity, like Husky Energy Inc., Imperial Oil Ltd. and Suncor Energy Inc., decide to squeeze their own workers till the pips squeak to punish the government for reducing their profit expectations for the greater good.
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Suncor was down 1.5 per cent, while Imperial fell 4.1 per cent and Husky shares were off 0.8 per cent in afternoon trading. The province expects the 325,000-barrel-a-day reduction to be in place for the first three months, while storage is drawn down to historical levels. But she has said that rail cars, new pipelines and increasing domestic refining capacity would not bring relief soon enough. NY time Monday, the tightest it's been since July, data compiled by Bloomberg showed.
In written comments Monday, energy minister Amerjeet Sohi said that Ottawa shares in "Alberta's frustration at the ongoing and unacceptable discount" on Canadian crude. The court ordered the country's National Energy Board to redo its review of the pipeline.
"We don't actually need Ottawa's sympathy".
"This intervention will provide the kind of predictability and stability to industry players to allow them to keep people on because they can see a light at the end of the tunnel and so we are hoping it will have a neutral to positive affect on jobs going forward", said Notley.
In Alberta, United Conservative Party leader and Moe-ally Jason Kenney supported the actions taken by Notley's government and encouraged Saskatchewan to follow suit.
Under the plan, oil production will be cut by 325,000 barrels per day until the surplus is depleted and then it will drop to 95,000 barrels a day.
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