Previously I wrote about the need for the Government of Alberta to enact legislation to curtail the oversupply of crude oil in the province and try to restore more ‘normal’ differentials. Last Sunday, Premier Rachel Notley took the bold step of telling producers they need to reduce production by 325 MBpd or roughly 8.7% of total production starting in January 2019. When layered together with an exemption for producers who were below 10 MBpd, this translated to approximately 25 producers in the province being impacted, and the vast majority of the impacted production was focused in the oil sands. Make no doubt about this, these actions were highly unusual and not typically welcome, as government action in the face of free market dynamics reflects the symptoms of a much larger problem. The response by the market was swift and saw an immediate tightening of near term differentials for Western Canadian Select (WCS) to the high end of normal ranges. For those who are not aware, WCS has typically traded at a discount of CAD$20/barrel to WTI, and the standard deviation around that number is CAD$7/barrel. So imagine my surprise when I saw commentary in the news that people are […]
