Alberta Premier Says Production Cut Decision Is Coming on Sunday

(Bloomberg) -- Alberta Premier Rachel Notley will announce a decision on Sunday on whether to require the province’s oil producers to cut output in a bid to boost Canadian oil prices.

Notley’s office has been studying a potential mandated production curtailment for weeks as a surge of oil-sands production, pipeline bottlenecks and heavy maintenance at U.S. refineries sent Canadian heavy-crude prices to record lows. The issue has sparked disagreement among pure producers who are being hammered by the plunging prices and integrated companies whose refineries are benefiting from the cheaper feedstock.

Alberta Premier Says Production Cut Decision Is Coming on Sunday

A mandated production cut would be the biggest step the government has taken yet to solve the crisis in the province’s energy industry, which is estimated to be costing the Canadian economy C$80 million ($53 million) a day. Already, the situation has led some producers to cut output on their own, slash dividends and delay their drilling plans for next year.

“This is a major decision with major implications,” Notley said in the letter released Saturday. “We need to be smart. That’s why, for weeks now, we have been in extensive discussions with everyone involved, and have sought expert advice from many quarters. That work is drawing to a close.”

A curtailment aimed at boosting prices would be an unprecedented step. The province temporarily cut output in the 1980s, but that move was meant to protest energy policies from the federal government.

Prices Slide

The pricing situation the industry finds itself in now is also unprecedented. Western Canada Select, a common grade of crude produced by the oil sands, closed at $13.46 a barrel earlier this month, the lowest on record in Bloomberg data stretching back to 2008. The grade’s discount to U.S. benchmark oil prices widened to $50 a barrel last month, also a record.

Notley has appointed three envoys to study potential solutions and announced a plan to buy rail cars to ship more oil to market. But those measures won’t take effect immediately, and have done little to clear the glut of oil sitting in storage tanks. However, speculation that a curtailment plan was coming helped boost WCS spot prices by 49 percent last week. That’s still $29 a barrel less than U.S. prices.

“With so much oil just sitting there, unable to be moved, it is being sold at fire-sale prices,” Notley said. “Other oil products around the world are selling for five, six times more. It’s absurd, economically dangerous, and cannot be allowed to continue.”

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