Economy

Moe will not cut oil production despite pleas from Alberta's opposition leader

Moe will not cut oil production despite pleas from Alberta's opposition leader

Amid a fiscal crisis caused by the low price of oil, Alberta Premier Rachel Notley took the drastic step to cut oil production.

The problem for Alberta - and for Canada - is that after a decade of trying, the region is still no closer to building a major oil pipeline to move product to either the United States or to the Pacific Ocean.

"We must act immediately".

Dave is joined by Calgary Herald business columnist Chris Varcoe.

Canada's oil trades at a steep discount to the USA benchmark in part due to differences in thickness and quality of the raw product produced north of the border, but also because of a "dearth" of pipeline capacity to facilitate the transfer of oil to refiners in offshore markets.

The planned cuts by the world's fifth-biggest producer follows a renewed commitment over the weekend by Saudi Arabia and Russian Federation to extend their deal to manage the oil market.

Imperial CEO Rich Kruger warned of the danger of "unintended consequences" of the production cuts, including to competitiveness and trade. Notley said the government has a duty to protect resources as they are owned by every Albertan.

Oil prices have been making headlines after Canadian crude dropped as low as US$14 a barrel earlier in November. As a result, the price of Alberta crude is sitting around $10 a barrel, which Notley says is a fraction of what other world producers are getting.

Instead, the mandatory reductions were handed down by the provincial government of Alberta.

The leader of the Opposition UCP in the province, Jason Kenney, said the feeling of alienation shouldn't be understated. "As owners, we have an obligation to get the most value possible".

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The UCP had proposed 10 per cent production cuts, but Kenney said he didn't want to "quibble over the numbers".

Global oil giants like the U.S., Russian Federation and Saudi Arabia that command the attention of traders had some unexpected company on Sunday: a province of less than 5 million people in Western Canada.

Rory Johnston, commodity economist at Bank of Nova Scotia, said the WCS surge seemed "more or less right", but that "we're not used to seeing the market price in such a definitive change in supply so quickly".

Alberta produces 3.7 million barrels a day, but that's 190,000 barrels more than can be shipped. The cuts are scheduled to end on December 31, 2019.

The Canadian Association of Petroleum Producers (CAPP) says this action by the province emphasizes an absolutely dire situation the energy industry is in. The province estimates 25 producers will have to impose cuts.

Alberta's decision to mandate output cuts to reduce a supply glut will have negative effects on North American producers of lighter oil used for blending and USA refiners importing crude via rail, even as several major Canadian energy companies cheered the move.

The province is directing the Alberta Energy Regulator (AER) to launch the system of curtailment through existing legislation.

Oil prices have been sagging, with USA crude recently dipping to near $50 a barrel on renewed oversupply fears.

Similarly, while oilsands giants like Cenovus Energy Inc. and Canadian Natural Resources Ltd. will likely be happier, it's far from clear whether this will translate into anything that helps the NDP's political circumstances. Texas-based Valero averaged about 30,000 bpd of Canadian crude by rail in the third quarter, it said.


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