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Canadian Drillers Are In No Rush To Bring Back Oil Production

Despite the fact that some Canadian oil producers have started to restore the production they had curtailed earlier this year, the pipelines carrying heavy oil to the market are not overflowing as they were a few months ago, according to estimates from analysts and pipeline operators.

Enbridge, the operator of the Mainline—the largest pipeline network in North America—told Bloomberg this week that nominations for heavy crude oil exceeded capacity by just 3 percent for July and by 7 percent for August, compared to shipment nominations typically exceeding capacity by 40 percent.

Due to the price and demand crash in the second quarter, Canada’s oil production slumped to 4.4 million barrels per day (bpd) in May – the lowest output since the middle of 2016 when wildfires crippled oil sands production, the U.S. Energy Information Administration (EIA) said last week.

In the first half of 2020, oil producers in Canada cut their production by 20 percent compared to the average 5.5 million bpd oil production in 2019 because of low demand for fuel in North America and low oil prices that had Canadian producers curtail output.

More than 1 million bpd of curtailed crude oil production in Canada and lower demand in the pandemic have resulted in a rare occurrence in Canada’s pipeline takeaway capacity in recent years—there was space available on the few pipelines taking Canada’s crude oil to the United States in the first half of 2020.

In recent weeks, Canadian oil companies – encouraged by higher oil prices –have brought back some of the crude oil production they had curtailed.

Husky Energy, Cenovus Energy, ARC Resources Ltd, Baytex Energy Corp, and Imperial Oil are restoring part of the production they had curtailed when prices plunged in March and April. Out of the 1 million bpd curtailed production in Canada, at least 20 percent is being brought online again, according to Bloomberg estimates.

By Michael Kern for Oilprice.com

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