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Irina Slav

Irina Slav

Irina is a writer for the U.S.-based Divergente LLC consulting firm with over a decade of experience writing on the oil and gas industry.

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Canadian Crude Rises 70% On Unprecedented Output Cuts

Since Alberta Premier Rachel Notley announced an oil production cut of 325,000 bpd beginning next month, the spot price for Western Canadian Select has gained over 70 percent, Bloomberg reports, adding that the deep discount, at certain times more than US$40 a barrel, had closed by more than half over the last eight days since the cut was announced.

The discount could narrow even further as the cut enters into effect in January and producers and refiners negotiate future deliveries. This will in turn benefit Canadian producers who have already begun revising capital expenditure plans for 2019 pressured by the low price of their oil.

Last week, Premier Rachel Notley announced that the government of the province will enact an 8.7-percent crude oil production cut to clear excess stockpiles as pipeline bottlenecks and growing volumes of oil being transported by the costlier railway pressured Western Canadian Select to historic lows against the U.S. benchmark, WTI.

Premier Notley last week described the situation as “fiscal and economic insanity.” Alberta now has to buy more oil trains—a more dangerous way to transport oil than pipelines—because production is rising inexorably while pipeline capacity remains the same in the face of fierce opposition from environmentalist groups and First Nations against new pipeline projects. The National Energy Board recently said crude oil production in Canada this year will average 4.59 million bpd, up by 22,000 bpd from earlier forecasts.

However, plans for 2019 are for reduced spending, Bloomberg notes, as producers feel the bite of low oil prices deeper. The decision to start cutting production would save not just spending, but also jobs because many companies had planned substantial layoffs and reduced spending to a minimum to stay afloat. The lower spending could mean lower production growth, too, which would serve to keep prices higher.

By Irina Slav for Oilprice.com

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