Why Canadian Oil Stocks Are Soaring Today

Alberta premier announces 8.7 per cent oil production cut to increase prices

Premier Rachel Notley is ordering a mandatory cut to oil production to deal with a price crisis she says threatens to gut Alberta's bedrock industry.

The market price for Alberta oil rebounded Monday, but the discount Canadian producers have to stomach compared with the price their USA counterparts get is still north of $30 a barrel. Western Canadian Select (WCS) is the reference price for heavy crude oil from the oilsands delivered at Hardisty, Alta.

Alberta now produces 190,000 barrels a day more than can be shipped and has twice the normal levels of oil in storage - a total of 35 million barrels.

The Western Canadian province of Alberta this week announced mandated temporary oil production cuts, a rare move aimed at bolstering sagging crude prices caused by rising production that has outstripped pipeline capacity and led to a glut in storage.

Winners and losers: Calgary economist Trevor Tombe says $4 per barrel doesn't sound like much but, over a year, it's worth about $1 billion to the Alberta government's budget.

That figure is expected to shrink as the glut of oil in storage is reduced. "Saskatchewan produces a significant share of Canadian oil".

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. The cuts are scheduled to end on December 31, 2019.

Shares in the companies most likely to benefit from the move to curtail crude production from larger producers starting January 1 soared Monday as the price differential for heavy oilsands bitumen-blend fell.

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"They don't feel it will actually be effective in narrowing the differential".

They said the current agenda does not include any discussion of a crisis facing the energy industry. The inability to build a major pipeline has put a ceiling on midstream capacity, and the bottleneck has swelled over time, ultimately leading to the latest announcement from Alberta ordering the shutdown of some oil supply.

Notley called the production cut a hard decision because there is not consensus in the industry.

While the government isn't helping with the rail vehicle purchase and had no new funds for oil and gas in its fall fiscal update, Natural Resources Minister Amarjeet Sohi did reveal on Friday that he had asked the National Energy Board to evaluate whether Canada's pipelines are being used to their full capacity.

Alberta and oil producers prefer to add more pipelines, but projects face fierce opposition from environmentalists and some Aboriginal groups.

Share prices of Canadian companies that drill condensate, a light oil used for blending with heavy Canadian crude, hit multiyear lows on Tuesday, as demand is likely to fall as a result of the cuts, BMO Capital Markets analyst Randy Ollenberger said in a note. "They've seen ups and downs - they've never seen anything like this before", he told CTV's Power Play on November 28.

The federal government has not yet decided whether it will contribute anything toward Alberta's purchase of new rail cars so that two more trains a day can transport crude from Alberta to refineries in Canada and the United States.

The losers include integrated producers who will likely pay more for their refining feedstock and companies that had meant to grow their production in the first half of 2019, it said.

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