Planned production cuts already easing Alberta’s oil crisis

Spot price of Western Canada Select crude surged more than 70% on announcement

CALGARY— Alberta’s oil-production curtailment plan has largely accomplished its mission — even before it has gone into effect.

Since Canada’s top oil-producing province announced mandatory output curbs on Dec. 2, the spot price of Western Canada Select crude has surged more than 70 per cent. The grade’s discount to the U.S. benchmark has been chopped in half to around $13 (U.S.) a barrel, the narrowest in more than a year. Other blends, including Edmonton Mixed Sweet and Syncrude, also are surging.

Oil producers are saying the 8-day-old plan will bring “significant relief” to the province’s pipeline congestion problem and it’s even being credited with preventing layoffs for at least one major oil-sands company. The 325,000-barrel-a-day supply cut takes effect next month.

“It’s working — the proof is in the price,” said Tim Pickering, chief investment officer of Auspice Capital Advisors Ltd. in Calgary.

The plan announced by Alberta Premier Rachel Notley probably has encouraged producers to start dialling back output be- cause they know they can do so without putting themselves at a disadvantage to rivals, Pickering said.

As oil suppliers and refiners negotiate sales for the months ahead, the Western Canadian discount may continue tightening into March, he said.

Still, uncertainty abounds. Before the production cuts were announced, companies had started to slash dividends and delay 2019 drilling plans and it may take more than a week of stronger prices for them to reverse those moves.

The first signals may come this week as explorers announce 2019 budgets. Capital spending among Canada’s explorers and producers may increase 5 per cent in 2019, trailing the10 per cent growth in the U.S., according to a survey conducted by Evercore ISI.