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Alberta Premier Looks To Ease Oil Production Cuts

Rachel Notley, Alberta’s Premier, said prices of Canadian crude are high enough for producers to start gradually ramping up production again, the Canadian Press reports.

Notley ordered a production cut of 325,000 bpd, starting this month, to clear excess supply and support prices, which last year plunged to the deepest discount to West Texas Intermediate in years, at one point exceeding US$50 per barrel.

The cuts were to be in place for several months until the inventory overhang cleared, and then they were to be reduced to 95,000 bpd. However, Western Canadian Select reacted to the premier’s announcement even before producers began reducing their output. Prices, in fact, rose so fast, that some industry observers noted Canadian crude is becoming less competitive because of the small discount.

Now that the primary goal of the cuts has been achieved, Notley said producers could reverse the cuts, boosting their production by a combined 75,000 bpd in February and March.

The announcement comes after one of Alberta’s largest oil producers, Canadian Natural Resources, spoke out against the cuts, arguing they placed an excessive weight on the company relative to its peers.

CBC News earlier this week reported, citing a Canadian Natural letter to suppliers, that a revision in the methodology of how the production cuts are applied will saddle the company with an "unreasonable and discriminatory" portion of the cuts. This marked a U-turn in the company’s stance on the cuts. Initially, CNR, like Cenovus, supported the measure, unlike Suncor, which was against it from the start as its refining business benefits from low prices, which makes the company a winner wherever prices go.

The 95,000 bpd cuts were supposed to be in place until the end of the year as Alberta increases the amount of oil it ships to refiners by railway in the absence of sufficient pipeline capacity. However, as this early easing suggests, they may not be needed for so long.

By Irina Slav for Oilprice.com

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