Canadian heavy crude surges after Alberta imposes cuts

By Robert Tuttle, Catherine Ngai and Sheela Tobben on 12/3/2018

NEW YORK (Bloomberg) -- Canadian heavy crude strengthened the most since June after the Alberta government mandated production cuts across the province.

Western Canadian Select’s discount to U.S. benchmark West Texas Intermediate narrowed $6/bbl to $23/bbl as of 3:51 p.m. New York time, data compiled by Bloomberg show. The discount shank to as much as $19.75/bbl earlier in the day, the tightest since July. On an outright basis, prices were up more than $8/bbl.

Alberta announced late Sunday that oil producers will have to collectively cut output by 325,000 bpd, or 8.7%, starting in January to alleviate rising inventories and pipeline bottlenecks. The reduction would drop to 95,000 bpd by the end of next year.

A surge of production from oil sands projects such as Suncor Energy Inc.’s Fort Hills mine earlier this year ran into limited pipeline space, causing inventories to rise and prices to decline. WCS’s discount to futures fell to $50/bbl in October amid refinery maintenance in the U.S. Midwest.

Already, Canadian oil producers including Canadian Natural Resources Ltd. and Cenovus Energy Inc. announced that they had curtailed output. Those cuts added up to about 150,000 bopd, according to Explorers and Producers Association of Canada.

The province is producing 190,000 bopd more than can be shipped out and inventories are “nearing capacity,” Alberta’s government said in a release Sunday. The cuts will reduce volatility and narrow the Canadian crude differential by $4/bbl relative to what it would otherwise have been.

WCS swaps for calendar year 2019 traded at $19.50/bbl discount to WTI earlier Monday, compared with $25.75 on Friday, according to market participants. Prices have since retreated, with bids at minus $21.45.

Other Canadian crudes also rose on the announcement. The discount for Edmonton Mixed Sweet to futures narrowed $8.25/bbl to $14.75/bbl and synthetic crude’s discount shrank $1.50/bbl to $17bbl, data compiled by Bloomberg show.

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