Sask. not following Alberta in cutting oil production

Sask. not following Alberta in cutting oil production

Western Canada Select crude's discount to US benchmark West Texas Intermediate oil narrowed on Monday to the tightest since July. NY time, data compiled by Bloomberg show. The move also found support among her political rivals.

Alex Pourbaix, chief executive officer of oil-sands producer Cenovus, which may have to shut in about 35,000 barrels a day of production, said the industry is not happy to have the government so involved in the industry but realized that the curtailment plan was the only way to avoid "disaster".

Above: Price of Central Alberta blend of oil.

A new threat looms for Canada's largest oil producing province, even as it imposes mandatory output cuts to ease a glut that has driven down crude prices.

Oil prices were pressured by a weekly report from the American Petroleum Institute (API) that said US crude inventories rose by 5.4 million barrels in the week to November 30, to 448 million barrels, in a sign that USA oil markets are in a growing glut. The crisis has caused some producers to reduce production on their own, slash dividends and delay next year's drilling plans. Construction is underway on Enbridge Inc's Line 3 pipeline replacement from Alberta to the United States, with the project expected to be in service by the end of 2019.

Official U.S. government oil production and inventory data is due later on Wednesday. Further reductions in the curtailment are expected in the fall and winter as additional rail capacity comes online.

Federal Natural Resources Minister Amarjeet Sohi said Monday he is asking the National Energy Board to make sure Canada's oil pipelines are being used as efficiently as possible. The province estimates 25 producers will have to impose cuts.

How much production would be affected if Saskatchewan did implement cuts in a similar manner to Alberta?

The first 10,000 bpd for each producer will be excluded from the mandatory cuts, meant to avoid negatively impacting small producers.

Health care fell 1.8 per cent as shares of cannabis producer Aphria Inc. plunged almost 28 per cent after short-sellers called the Canadian company a "black hole" and alleged that its recent global acquisitions totalling $280-million were "largely worthless". The move is meant to combat steep discounts now placed on Alberta oil. Hopefully, the implementation of the decision will be effective, since the impact of curtailment on small and medium oil producers, which have already been hammered by this government's regulatory changes, could be drastic.

About the only dissenting voice has come from Canada's integrated oil companies, whose refineries have been benefiting from the cheaper feedstock.

As of December 3, Husky Energy, Saskatchewan's largest heavy oil producer, had the most drilling rigs working in the country, at 16. U.S. refiners have turned to rail to ship incremental crude barrels to the U.S. Gulf Coast to take advantage of discounted prices. The system would require a total of about 80 locomotives and more than 7,000 cars.

"I think those two factors combined are providing a little bit of lift for oil prices", said Craig Fehr, Canadian markets strategist for Edward Jones.

Discounts for upgraded synthetic oil improved to US$13.50 per barrel Monday afternoon from US$18.50 on Friday and Edmonton-priced light oil differentials fell to US$15.25 from US$23.00. In October, WCS' discount to futures dropped to $50 a barrel.

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