CP NewsAlert: Alberta orders oil production cut to deal with price differential

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Hapless Alberta takes action as oil prices crash Faced with a crisis moving oil out of the country, the provincial government in Alberta is stepping in to purchase trains in order to ease the midstream bottleneck.

Oil prices have been making headlines after Canadian crude dropped as low as US$14 a barrel earlier in November.

A oil pump at sunset with snow on the ground. CEO Rob Broen in an interview Wednesday with BNN Bloomberg Television. The move is meant to combat steep discounts now placed on Alberta oil. As pipelines have filled up, the discount has exploded.

"The Alberta government has listened and responded quickly".

The short-term production cuts, permitted under the province's legislation, will take effect on New Year's Day, the premier said. The cuts will reduce volatility and narrow the Canadian crude differential by $4 a barrel relative to what it would otherwise have been. "Saskatchewan will continue to work with our provincial counterparts and advocate for the federal government to create a long-term solution to this crisis by getting pipelines built so we can sell our oil for what it is worth", Moe said.

While Alberta's plan to mandate OPEC-style production cuts already is boosting oil prices and shares, the revival of Canada's resource nationalism adds another layer of risk for investors to consider.

Cutting oil production was about the premier's only option.

Canada shipped almost 270,000 bpd of oil by rail to the United States in September, according to the National Energy Board, half of which went to Gulf Coast refiners. She even offered an acknowledgment to the neoliberal zeitgeist of our era: "One never wants to begin by reaching into the market and telling people they have to produce less ..."

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A USA federal judge also blocked a permit for construction of the Keystone XL oil pipeline from Canada and ordered officials to conduct a new environmental review.

The third project is the Trans Mountain pipeline, which is now owned by the Canadian government.

Above: Price of Central Alberta blend of oil. The cuts will then drop to 95,000 bpd until December 31, 2019. Still, there are no other options. "The bad news is that Line 3 is still at least a year away".

The production curbs will provide some cushion for producers, but will not eliminate the discount on heavy Canadian oil that has persisted for many years, said Jihad Traya, manager at energy consultancy firm Solomon Associates LLC in Calgary.

Canada's Federal Court of Appeal halted the contentious Trans Mountain pipeline expansion that would almost triple the flow of oil from the Alberta oil sands to the Pacific Coast - a setback that came just as the federal government bought the project to help ensure it gets built amid strong environmental and aboriginal opposition in British Columbia. That's around the time the International Maritime Organization 2020 rule starts to impact local crude prices, according to analysts including CERI's Fogwill, IHS Markit's Kurt Barrow and Wood Mackenzie's Mark Oberstoetter.

Fire-sale prices have led to concerns the oilpatch will have to find savings elsewhere in the coming weeks and months by slashing capital spending or jobs.

Meanwhile, shares in oil producers that had been either benefiting or were insulated from the discount prices were little changed.

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