Imperial Oil slams Notley's cuts as 'negative message to investors'

Jeannie Matthews
December 7, 2018

The heady days of US$100 oil aren't expected any time soon, but Canada's heavy crude should continue to perk up in 2019 and 2020, according to a report from CIBC Capital Markets.

More broadly, the slide in U.S. oil followed a tumble in global stock markets on Tuesday, with investors anxious about the threat of a widespread economic slowdown.

She says that a lot of the frustration that Notley has with the federal government shone through the speech on Sunday. "That's going to be a big concern".

Analysts said that means the market is already halfway to the provincial goal, estimating that between 130,000 and 160,000 bpd has already been shut in, mainly by Cenovus and Canadian Natural. The move is meant to combat steep discounts now placed on Alberta oil. The company lives on today as a gas-station chain owned by Suncor. Hopefully, the implementation of the decision will be effective, since the impact of curtailment on small and medium oil producers, which have already been hammered by this government's regulatory changes, could be drastic.

Asked about the issue on CTV's Question Period, federalInnovation Minister Navdeep Bains said the government was attempting to help the oil industry by looking for ways to help diversify the market for Alberta oil and by purchasing the Trans Mountain pipeline.

Federal Conservative Leader Andrew Scheer said Alberta's dilemma is a direct result of the Trudeau government's failure to get pipelines built while cancelling ones like Northern Gateway. The move was a bid to keep the project alive after Kinder threatened to walk away amid fierce opposition from British Columbia.

Premier Rachel Notley announced Sunday that Alberta producers would see about 325,000 barrels per day (bpd) cut from production next year in order to address a brutal oil differential. Companies that produce less than 10,000 barrels a day will not be affected by the daily cuts.

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During the first year, the ship-fuel standard will make WCS crude about $7/bbl or $8/bbl cheaper relative to West Texas Intermediate futures than it would normally be, IHS Markit's Barrow, V.P. of the oil markets for midstream and downstream energy, said by phone from Houston.

Some in the industry outright oppose the measure.

Oil prices slumped by around 2 percent on Wednesday, pulled down by swelling US inventories and a plunge in global stock markets as China's government warned of increasing economic headwinds. Imperial Oil Ltd. made similar comments.

The discount of Western Canadian Select crude to US benchmark West Texas Intermediate oil narrowed $9.25 (U.S.) to $19.75 a barrel as of 10:11 a.m.

Alberta estimates the province is now over-producing by about 250,000 bpd.

Notley said Canada's economy is losing $80 million Canadian (US$60 million) a day. Alberta is now looking to buy trains to move oil out of the province.

"We have a fairly good sense of what we need to do to clear the market, and clear storage", Notley said, adding the decision was "very hard". "We interpret the phrasing of the announced cut as keeping production down 50 kb/d [year-on-year] in 2019 and 200 kb/d below our prior assessment with the greatest impact on 1Q19 (down 225 kb/d quarter-on-quarter) before new rail capacity gradually comes online from April onward", Goldman Sachs wrote in a note.

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