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Oil Companies Claim Force Majeure Over Canadian Wildfires

Wildfire Alberta Oil Sands

The already week-long fires still raging cross the Alberta oil sands region in Canada have forced many companies to further cut production and issue warnings that crude oil delivers may experience severe disruption.

So far, at least 10 oil sands operators have reduced production, largely because of evacuations of residents and workers, and due to emergency measures that have complicated deliveries of oil via rail, pipeline and highways.

British Petroleum (BP Plc), Norway’s Statoil, Suncor Energy--Canada’s largest oil producer--and US refiner Phillips 66 have issued force majeure notifications to customers over potential supply disruptions caused by the raging wildfires.

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Around one million barrels of production have already been shut down, as the fire spreads across the oil sands patch. The region’s output stands at about 2.5 million barrels a day.

On Saturday, Canadian company Syncrude said it was shutting down its mine and processing plant north of Fort McMurray, where the fires started. The same day, Husky Energy said it had also shut down its Sunrise joint venture with BP after already having cut output from 30,000 to 10,000 barrels a day.

The production cuts caused key Canadian crude prices to rally to their highest in months and boosted U.S. futures this week. On Monday, oil prices soared by 2 percent in early trading

Local officials said on Sunday the fires had scorched about 161,000 hectares. Firemen are hoping lower temperatures and rain showers may help contain the blaze.

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One analyst estimated insurance losses could exceed C$9 billion (U.S.$7 billion).

The economic cost of the disaster is “unquantifiable,” federal Public Safety Minister Ralph Goodale said, but it will be “far-reaching and deep.”

A total of 40 fires were still raging over the weekend, down from 49 Thursday, with seven considered “out of control,” according to government estimates. More than 1,400 firefighters, approximately 130 helicopters, and 27 air tankers are fighting the fires.

By Charles Kennedy of Oilprice.com

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