Forest Fires Cut Into Canadian Oil Output -- Update
May 06 2016 - 2:31AM
Dow Jones News
By Chester Dawson
CALGARY, Alberta--Raging forest fires in the heart of Canada's
oil-sands region curbed production and helped drive up global
prices on Thursday as some worried enough oil was threatened to
nearly wipe out the world's oversupply.
Many companies evacuated staff and cut production because of
pipeline outages and the risk from encroaching blazes. No oil
operations reported fire damage, but their efforts to protect
themselves led to a reduction of at least 645,000 barrels a day, or
almost one-quarter of Canada's 2.5 million barrels in total oil
sands production. Much of that output is sent to refineries in the
U.S.
The outages are widely expected to be temporary, but they drove
up the price of typically heavily discounted Canadian crude in
recent trading. Prices for the U.S. benchmark crude rose 1.2% to
$44.32 a barrel Thursday, and the global benchmark gained about
1%--with worries about lower supplies from Libya and Nigeria also
affecting trading.
If oil production now threatened by the Canadian fires were
halted, it would be enough to nearly wipe out the world's
oversupply, said Tim Pickering, chief investment officer of
Calgary-based Auspice Capital Advisors Ltd., which manages $300
million and an exchange-traded fund based on the Canadian Crude
Index.
"This is the most important issue in oil today," Mr. Pickering
said. "That will put the system back in check really quick."
Oil prices have been pressured for almost two years by excess
supplies. But production has started to fall in the U.S. and
elsewhere following massive spending cuts by energy companies.
Meanwhile, demand continues to grow.
Analysts say the global market is less oversupplied than it was
even a few months ago at a time when producers' capacity to ramp up
production has been reduced. That makes the oil market more
vulnerable to a shortage if production is halted in any part of the
world.
In addition to Canada, oil traders are currently worried about
lower supplies from Libya because of political unrest and from
Nigeria due to a pipeline outage. Some analysts also warn that
Venezuela's oil production could fall amid the country's struggling
economy and power shortages.
The longer-term impact of the Alberta fire remains unclear. Some
officials say production will likely bounce back once the fire
threat recedes; others say damage to infrastructure and from
displaced workers could hamper efforts to ramp up output once the
fires are put out.
"I expect we'll recover fairly quickly, but it's too early to
say how much damage has been done to equipment and operations in
the town of Fort McMurray," Steve Laut, president of Canadian
Natural Resources Ltd., said on a conference call with analysts.
Mr. Laut said that oil sands output at his company, a major oil and
gas producer, hasn't been affected by the disaster.
But the Bank of Nova Scotia said the destruction of property and
loss of production at other oil sands operations could cast a long
shadow. The forest fire fallout could mean "very little" GDP growth
for the overall Canadian economy in the second quarter and that the
damage to infrastructure will slow the recovery in the country's
oil patch, the bank said in a report.
In the latest of a series of plant closures, Suncor Energy Inc.,
Canada's largest producer, late Thursday shut down all of its
wholly owned oil sands assets, including two mines and a pair of
well sites, which had been producing a total of 300,000 barrels a
day. It had previously reduced output at another mining operation
called Syncrude in which it owns a controlling stake.
Exxon Mobil Corp.'s Imperial Oil and ConocoPhillips also shut
some production earlier Thursday. Exxon cut output by an
undisclosed amount at its 194,000 barrel-a-day mine, citing
"uncertainties." Conoco halted a 50,000 barrel-a-day mine and
evacuated all staff due to a fire near the town of Anzac. They
followed a move Wednesday by Nexen Energy ULC, a subsidiary of
China's Cnooc Ltd. On Wednesday, the Canadian unit of Royal Dutch
Shell PLC shut down two oil-sands mines, which produce 255,000
barrels a day, that it owns in partnership with Chevron Corp. and
Marathon Oil Corp.
"That's largely being done to allow folks to focus on rendering
aid to the community and emergency response," Lee Tillman, chief
executive of Marathon Oil said on a conference call. "The mines
themselves are not under any direct or immediate threat."
Nicole Friedman, Timothy Puko and Erin Ailworth contributed to
this article.
Write to Chester Dawson at chester.dawson@wsj.com
(END) Dow Jones Newswires
May 06, 2016 02:16 ET (06:16 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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