Cenovus CEO praises Alberta oil curtailment in this "extreme case"

Global prices crashed last month by the most in more than a decade, a plunge that battered producers in Alberta in particular amid surging oil-sands output, a shortage of pipeline space and heavy US refinery maintenance.

Alberta's oil is now fetching bargain basement prices thanks to a growing glut and lack of pipeline capacity to get oil to market. That's on top of mounting concern that the country's regulatory framework makes it very hard to get much-needed pipeline projects approved.

Producers' stocks naturally reflected the good news, and there may be more on the way if OPEC agrees to a production cut tomorrow in Vienna.

"It's about time the provincial government did something", he said.

The move is seen as an attempt to shrink the difference between the price on Alberta oil and global benchmarks.

Light or heavy: Each type of oil around the world has its own price.

Notley says in the letter that there are two competing ideas for short-term relief - either let the market sort itself out, risking possible job losses and business closures, or intervene and temporarily restrict oil production.

Notley said production of raw crude oil and bitumen will be reduced by 8.7 per cent - or 325,000 barrels per day - in January because of shipment problems that she blames on a lack of pipelines. Notley and the industry proponents of the move have argued that it's not so much government meddling in the market, rather it's a way of fixing a broken market.

The USD/CAD rate was quoted -0.72% lower at 1.3190 Monday in response to the production cut and after a near-3% rise in the price of both WTI and Brent crude oil during the session.

"There's not a lot of celebrations going on around downtown Calgary", Pourbaix said of the city where his company and most of Canada's energy industry is based.

Some in the industry outright oppose the measure. As I've said these past few weeks, the market has been temporarily broken by pipeline policy failures that have left Canada without enough takeaway capacity for its growing oil production.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $52.31 per barrel, down 95 cents, or 1.8 percent.

The province is directing the Alberta Energy Regulator (AER) to launch the system of curtailment through existing legislation. Joan Pinto, an energy specialist at Canadian Imperial Bank of Commerce, said in an interview the cuts could reduce the differential by more than US$4, and that it will even benefit producers that are integrated and have downstream capacity to deal with wide differentials.

"Our oil production and market for our product is significantly different than Alberta's".

"In Alberta, we believe that markets are the best way to set prices", Notley said, "But when markets aren't working, when companies are forced to sell our resources for pennies on the dollar, then we have a responsibility to act, to defend our province and to defend our resources". "We interpret the phrasing of the announced cut as keeping production down 50 kb/d [year-on-year] in 2019 and 200 kb/d below our prior assessment with the greatest impact on 1Q19 (down 225 kb/d quarter-on-quarter) before new rail capacity gradually comes online from April onward", Goldman Sachs wrote in a note.

Vanessa Coleman

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