Alberta to reduce oil production in 2019 to increase prices

Alberta premier announces 8.7 per cent oil production cut to increase prices

The oil-rich Canadian province announced a plan Sunday to force producers reduce output by 8.7%, or 325,000 barrels per day (bpd), effective January 1, 2019, until the excess crude in storage is drawn down.

The price discount between Western Canadian Select (WCS) and West Texas Intermediate (WTI) has fluctuated in recent weeks, reaching around C$45 a barrel.

Oil prices were pressured by a weekly report from the American Petroleum Institute (API) that said USA crude inventories rose by 5.4 million barrels in the week to November 30, to 448 million barrels, in a sign that US oil markets are in a growing glut.

In an email, Crescent Point Energy said, right now, it doesn't produce more than 10,000 barrels of oil a day, which is where the production cuts in Alberta are set.

Oil production cuts announced by the Alberta government will have the desired outcome of reducing steep price discounts on western Canadian crude, but will also create winners and losers, financial analysts say.

"Even before these revisions our forecasts were below consensus for Canadian GDP based in part on the dampening effects of slower global growth on the oil patch and other sectors", says Shenfeld.

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She says the glut in reserves driving down prices for Canadian oil to bargain-basement levels needs to be addressed before producers begin taking more drastic steps such as slashing capital projects or laying off workers.

Canadian heavy crude strengthened the most since June.

The Saskatchewan government will not be following Alberta's lead when it comes to cutting oil production in the face of plummeting prices.

Very. This is a rare move for a market economy like Canada, but it is not the first time an Alberta government has mandated cuts.

Alberta produces 3.7 million barrels a day, but that is 190,000 barrels more than can be shipped.

"But the broader health of the province is likely to benefit over the medium term from the decision as a result of narrowing differentials and stronger royalty revenue". That gap hit around $50 in late October due to a lack of pipeline capacity to get Alberta oil to market.

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Meanwhile, Suncor Energy Inc.(SU.TO) said that it also would have preferred to avoid government intervention.

The premier announced the cut on Sunday.

The bounce helps to explain the Canadian dollar strength today.

But he said Notley's government has played a role in creating the problem by not pushing back as the federal government cancelled the Northern Gateway pipeline to B.C. and introduced legislation that industry leaders say will make it more hard to get oil megaprojects approved.

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.

More broadly, the slide in US oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown. "The more we can get on board the better". After the province achieves an 8.7 per cent reduction in supply, it will then lower production cuts to 95,000 barrels per day, ending in December 2019. "They're not as big a player as us but they're still a player", McCuaig-Boyd said.

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