Alberta Wildfire: Canada Oil Price Surges As Production Slows

The worst wildfire in Alberta history is boosting Canadian crude prices as oil companies evacuate workers and shut in output.

Western Canadian Select, the benchmark for oil sands production, strengthened $1.35 to a $11.50-a-barrel discount to U.S. West Texas Intermediate on Thursday at 7:38 a.m. Calgary time, the smallest difference since July, data compiled by Bloomberg show. The absolute price rose $2.90 to $33.83 a barrel.

Suncor Energy, Royal Dutch Shell, Cnooc’s Nexen, Husky Energy and ConocoPhillips are among companies that shut plants or reduced production. More than 1 million barrels a day of oil sands production capacity may be affected by the blaze, according to company statements and data published in Alberta’s Spring Oil Sands Quarterly. The shutdowns follow supply disruptions in places like Nigeria and Iraq earlier this year that have helped crude prices rebound from a 12-year low.

“Canadian crude prices strengthened relative to WTI as news of supply curtailment started coming to light,” Morgan Stanley energy analyst Benny Wong said in an emailed note. The bank estimates 400,000 barrels a day to 550,000 barrels a day of production are currently offline.

A fire that will probably grow to about 100 square kilometers (40 square miles) has caused the evacuation of more than 80,000 people in Fort McMurray, the town at the heart of the Athabasca deposit, one of three large bitumen reserves that make up Alberta’s oil sands where companies produce about 2.5 million barrels a day.

Shell shut its 255,000 barrel-a-day Albian Sands mine and Suncor, Syncrude Canada and Connacher Oil and Gas have also reduced output from the region. Suncor said it brought down its base plant while cutting output from its Firebag and MacKay River oil sands operations.

Nexen shut its Long Lake facility and ConocoPhillips brought down its Surmont operations, the companies said on their websites. Nexen had already halted its 72,000 barrel-a-day upgrader and had reduced bitumen extraction after a Jan. 15 explosion.

The shutdowns reduced output from the Syncrude upgrader, pushing up Syncrude by $2.20 to $46.98, the highest price since November. Relative to WTI, it was 65 cents stronger at a $1.65 premium.

Husky cut production at its Sunrise facility to 10,000 barrels a day from 30,000 after Inter Pipeline shut a diluent line to the plant, company Spokesman Mel Duvall said. Connacher reduced about 4,000 barrels a day of output at its Great Divide project. Inter Pipeline Ltd. said it closed part of its Corridor and Polaris systems.

Disruptions ranging from pipeline attacks to field shutdowns in places like Nigeria, Iraq and Libya have taken 800,000 barrels a day of crude supply offline this year, according to energy-industry consultant FGE. That’s helped global benchmark Brent rally 62 percent from a 12-year low in January.

Brent futures in London gained as much as 4.8 percent on Thursday, while WTI in New York rose as much as 5.2 percent as data showed that U.S. production fell the most in eight months.

(c) 2016, Bloomberg · Robert Tuttle, Rebecca Penty · via washingtonpost.com