Alberta’s Oil Cut Success Story

Oil inventories in Alberta have fallen to two-year lows, according to energy data group Genscape, reaching 27.7 million barrels as of the end of July.

Global oil inventories have weighed on prices since before OPEC instituted production quotas for its members. Alberta was no exception, with the Canadian province struggling to move its oil out of the country as pipeline capacity was woefully insufficient compared to production capacity.

The shortage of pipeline capacity, which caused a buildup in inventories, weighed on the price of Western Canadian Select—so much so that Alberta’s Premier Rachel Notley announced last December an 8.7 percent cut to crude oil production province-wide. The cut, equivalent to about 325,000 barrels per day, was to be temporary.

The cuts were eased in February after prices rebounded, and then eased again in May and June.

Now, the excess oil inventory in the province has dwindled as crude-by-rail loadings increased in July. But concerns over Canada’s precarious oil situation remain. With pipeline capacity maxed out, oil by rail is the only outlet for its oil. And if rail shipments become uneconomical, shipments may again falter, creating a repeat of the higher inventories that saw the gap between WTI and WCS grow to about $50 at its worst. This is a real possibility, Genscape said.

Genscape noted, according to the CBC, that when the price of WCS rebounded in January following the initial round of production cuts, crude by rail shipments fell as WCS was no longer the bargain that it was previously when compared to WTI. When the gap between WTI and WCS shrunk to $10 per barrel, crude by rail was simply no longer economical for some shippers.

Alberta has plans to ease the production cuts again in September.

 

By Julianne Geiger for Oilprice.com