COP ConocoPhillips

CALGARY, Alberta—Crude oil output from some of Canada's largest producers dwindled on Thursday, affecting global prices, as raging forest fires led to some reductions in oil sands mining operations.

While no oil operations have sustained damage from the fires, many operators curbed output amid evacuations of nonessential staff, pipeline outages and the risk from encroaching blazes. That's led to an output reduction of at least 475,000 barrels a day, or almost one-fifth of Canada's 2.5 million barrels in total oil sands production. Much of that is imported to crude oil refineries in the U.S.

The outages are widely expected to be temporary, but they increased the value of typically heavily discounted Canadian crude in trading. West Texas Intermediate, the U.S. benchmark, rose 1.2% to $44.32 a barrel, while the global benchmark Brent rose 0.9%, as worries about lower supplies from Libya and Nigeria also affected trading.

Oil prices have been weighed down for almost two years by excess supply. But production has started to fall in the U.S. and elsewhere following massive spending cuts by energy companies, while demand continues to grow. That means the global crude market is less oversupplied than it was even a few months ago, analysts say, and producers' capacity to ramp up production has been reduced.

That makes the market more vulnerable to a shortage if production is halted in any part of the world.

The amount of daily oil production threatened by the Canadian fires would be enough to nearly wipe out the world's oversupply, said Tim Pickering, chief investment officer of Auspice Capital Advisors, 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."

In addition to Canada, oil traders are currently worried about lower supplies from Libya due to 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, with some industry officials saying production will likely bounce back quickly as soon as the fire threat recedes. Others say damage to infrastructure and from displaced workers could hamper efforts to ramp up output.

"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 so far 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 Thursday.

Western Canadian Select traded at less than $12 a barrel below WTI, the highest level relative to U.S. prices since July 2015.

The oil-sands facilities aren't directly threatened by the uncontrolled forest fires, but mandatory evacuations of workers have affected some operations.

In the latest of a series of plant closures, ConocoPhillips on Thursday shut down an oil sands site that produced 50,000 barrels a day and evacuated all staff due to an encroaching fire near the town of Anzac. That followed a similar move late Wednesday by Nexen Energy ULC, a subsidiary of Chinese energy giant Cnooc Ltd., to halt a nearby oil sands operation of 20,000 barrels a day.

ConocoPhillips began evacuating 865 people at its Surmont oil sands site before dawn Thursday, including 196 displaced local residents who had been offered shelter, in what a it called a "precautionary measure."

Two of the biggest oil-sands producers already reduced or halted production by at least 385,000 barrels a day. Suncor Energy Inc., Canada's largest producer, late Wednesday shut down its base mine operation, consisting of a pair of strip mines and partial refineries, with a combined capacity of 350,000 barrels a day, though it had been running closer to 130,000 barrels a day as a result of routine maintenance.

Suncor also cut output at its 350,000 barrels-a-day Syncrude mining operation and 203,000 barrels-a-day Firebag well site, but didn't specify by how much. The Canadian unit of Royal Dutch Shell PLC shut down its oil sands mines producing 255,000 barrels a day.

"That's largely being done to allow folks to focus on rendering aid to the community and emergency response," Lee Tillman, CEO of Marathon Oil, which holds a stake in the mines, said on a conference call. "The mines themselves are not under any direct or immediate threat."

Smaller operators, such as Husky Energy Inc., reduced output at its oil sands site on Wednesday by 20,000 barrels a day, citing cuts to supplies of a thinning agent called diluent needed to ship extra heavy oil sands crude.

The operator of that system, Calgary-based Inter Pipeline Ltd., said Thursday it reopened that diluent pipeline, which also supplies several other sites, including a large oil sands mine run by Exxon Mobil Corp.'s Canadian unit Imperial Oil Ltd. Representatives for Imperial did not reply to requests for comment on the impact.

Inter Pipeline also partially closed another pipeline that mostly carries raw crude oil from Shell's oil sands operations mixed with diluent from the oil sands near Fort McMurray to refineries near Edmonton. The company said Thursday that pipeline is also "ready for operation subject to activity resuming at local production facilities."

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 05, 2016 18:05 ET (22:05 GMT)

ConocoPhillips (NYSE:COP)
Historical Stock Chart
From Mar 2024 to Apr 2024

ConocoPhillips (NYSE:COP)
Historical Stock Chart
From Apr 2023 to Apr 2024