• 2 minutes Oil Price Could Fall To $30 If Global Deal Not Extended
  • 5 minutes Middle East on brink: Oil tankers attacked off Oman
  • 8 minutes CNN:America's oil boom will break more records this year. OPEC is stuck in retreat
  • 6 hours Iran downs US drone. No military response . . Just Completely Destroy their Economy. Can Senator Kerry be tried for aiding enemy ?
  • 6 mins California and Oil
  • 8 hours Solar Panels at 26 cents per watt
  • 1 min The Inconvenient Truth Of Electric Cars
  • 3 hours The Plastics Problem
  • 4 hours Hydrogen FTW... Some Day
  • 10 hours Ireland To Ban New Petrol And Diesel Vehicles From 2030
  • 18 hours Saudi Aramco allows sneak peek into its finances
  • 13 hours NATO Article 5: Attack on one member is attack on all. Members all must come to defense . . . NOT facilitate financial transactions to circumvent and foil US Sanctions. Somebody please tell Angela.
  • 1 day Would a War in the Middle East benefit the Oil Industry?
  • 20 hours Emissions Need To Be Halved To Avoid 3C Warming
  • 10 hours What's more Important Iran Nuke Deal or Strong China Trade Deal. Hypothetically, If China offered Trump North Korean and Iran deals in exchange for concessions on trade deal should he take it ?
  • 6 hours Here We Go: New York Lawmakers Pass Aggressive Law To Fight Climate Change
  • 13 hours Summit in Pyongyang: China's Xi Says World Hopes North Korea-U.S. Talks Can Succeed
Alt Text

OPEC’s Struggle To Avoid $40 Oil

Saudi Arabia cannot afford to…

Alt Text

Oil Resilient Despite Trade Talk Failure

Oil prices fell and quickly…

Alt Text

Expect More Bearish News For Oil

A very bearish inventory report…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Trending Discussions

Have Canadian Oil Prices Hit The Sweet Spot?

When Alberta’s previous government, led by Rachel Notley, instituted obligatory oil production cuts to arrest a serious discount in prices to WTI, some in the industry weren’t happy. Others, however, welcomed the move that aimed to alleviate the glut that had caused the vast discount, itself the result of insufficient pipeline capacity. Now, the cuts are paying off enough to make oil-by-rail lucrative again.

Bloomberg’s Robert Tuttle wrote this week that the excess supply of oil in Alberta had shrunk, according to data from Genscape, and shipments by rail were rising. Oil-by-rail was the only alternative for Canadian producers when the pipeline shortage became acute enough for everyone to notice. Yet it wasn’t an alternative of choice—oil-by-rail is more expensive for producers. The Notley government lent a hand and bought 4,400 new rail cars to boost this takeaway capacity by 120,000 bpd.

Yet at the time there were warnings that the railway alternative to pipelines would dampen refiners’ taste for Canadian crude as producers would undoubtedly pass some of the additional costs to their clients. However, that was before the U.S. tightened the sanction noose around Venezuela—one of the world’s largest producers of heavy crude—and heavy crude supply shrunk. As a result, oil buyers have had to adjust their perspective on what’s affordable and what’s not, and it seems that Canadian producers have benefited from this adjustment.

Alberta’s new government headed by Jason Kenney recently extended the oil production cuts into July. Canadian crude is currently trading at about US$14 below West Texas Intermediate, which is apparently the sweet spot, as Tuttle puts it, for the commodity. Inventories that hit a record in April are on the decline, and things are looking up. Related: Why Is China Pouring Money Into The Arctic?

Alberta currently produces 3.71 million bpd under the production cut program. Initially, the cuts totaled 325,000 bpd, but they were only in force for a short while: the quota for January was 3.56 million bpd, but the announcement itself pushed prices up so high that the actual cut of this extent quickly became unnecessary.

So, the government began relaxing the cuts, so the total eventually reached 3.71 million bpd as of this month. This amount of daily production should be maintained through next month as well despite the fact that there still is a shortage of pipeline capacity. The only change here was the passing by the Canadian Senate of two bills that would make it even more difficult to defend the case for the Trans Mountain pipeline expansion: the only new capacity project on the table.

On the flipside, with Venezuelan and Iranian sanctions unlikely to go away any time soon, the global supply of heavy crude will remain tight for the observable future. Tens of billions of dollars are necessary to adapt refineries to processing light crude only—in line with growing U.S. production of light crude—and these will be a long time coming. In the meantime, the market for Canadian heavy will remain favorable for pipeline-constrained producers. What’s more, production will continue to rise after the cuts are removed. By 2030, it could reach 4 million bpd, according to IHS Markit.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage

Trending Discussions


Leave a comment

Leave a comment





Oilprice - The No. 1 Source for Oil & Energy News