Sask. won't follow Alberta with cut to oil production

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Alberta added to a crude price rally Monday when Premier Rachel Notley announced producers must reduce output by 325,000 barrels a day starting next month.

Canada's oil trades at a steep discount to the US benchmark in part due to differences in thickness and quality of the raw product produced north of the border, but also because of a "dearth" of pipeline capacity to facilitate the transfer of oil to refiners in offshore markets.

Oil prices were pressured by a weekly report from the American Petroleum Institute (API) that said US crude inventories rose by 5.4 million barrels in the week to November 30, to 448 million barrels, in a sign that USA oil markets are in a growing glut.

About 25 producers are expected to face cuts until the 35 million barrels of oil now in storage are shipped out of the province.

International Brent crude oil futures were at $61.37 per barrel at 0240 GMT, down 71 cents, or 1.1% from their last close. After that, the production restriction will drop to an average of 95,000 BPD until the end of 2019 when the new rule expires.

Yet not everyone in the local oil industry is thrilled with the production cut.

Notley says a lack of pipeline capacity is a big part of the problem and she has once again called on Prime Minister Justin Trudeau's government to do more than just send sympathy.

The extraordinary intervention into the market was supported by some top Canadian oil executives. Whatever its other impacts may be, taking immediate action to raise the price of Alberta crude by limiting supply is likely to see some results because it acknowledges the most basic law of economics.

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Analysts said that means the market is already halfway to the provincial goal, estimating that between 130,000 and 160,000 bpd has already been shut in, mainly by Cenovus and Canadian Natural.

Already, Canadian oil producers including Canadian Natural Resources Ltd. and Cenovus Energy Inc. announced that they had curtailed output.

Alberta's plan appears to be carefully devised, he said, and even if rising prices cause American refiners to grumble, they'll continue to take Alberta oil because they're facilities are set up for it.

That figure is expected to shrink as the glut of oil in storage is reduced. That's more than the production of three of the 15 members of the Organization of Petroleum Exporting Countries (Equatorial Guinea, Gabon and the Republic of Congo) and almost a fifth the size of the cuts OPEC and its allies agreed to almost two years ago. "We are recognizing that there are going to be some unpredictable consequences and they are going to try and monitor it closely".

Toronto-Dominion Bank also said the production cuts and recent weakness in oil markets could curb the GDP growth rate by 0.1 to 0.2 percentage points next year.

Alberta Party Leader Stephen Mandel said the government was warned in the spring that this crisis was coming, and should have acted sooner.

And there is no sign whatsoever that any method developed to ship Alberta oil - whether in the form of rail cars, new pipelines or rehabilitated old ones - will not eventually be used to its fullest capacity, with predictable impact on global climate change.

It also hasn't been much affected by the price differential. Moe said he spoke to Kenney directly about the issue, but did not take Kenney's advice.

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