Canadian Crude Prices Surge as Fire Hits Shell, Suncor Output

• Oil-sands output may be down by 1 million barrels a day: RBC

• Suncor, Shell, Husky, ConocoPhillips cut production amid blaze

By Robert Tuttle and Rebecca Penty: May 6, 2016

The worst wildfire in Alberta history is boosting Canadian crude prices as oil companies evacuate workers and shut in as much as 1 million barrels a day of output.

Western Canadian Select, the benchmark for oil sands production, strengthened $1 to an $11.85-a-barrel discount to U.S. West Texas Intermediate on Thursday, the narrowest spread since July, data compiled by Bloomberg show. The absolute price rose $1.54 to $32.47 a barrel.

Suncor Energy Inc., Royal Dutch Shell Plc and Husky Energy Inc. are among companies that shut plants or reduced production. Cnooc Ltd.’s Nexen, ConocoPhillips, Imperial Oil Ltd. and Statoil ASA were also affected. The shutdowns follow supply disruptions in places like Nigeria and Iraq earlier this year that have helped global prices rebound from a 12-year low.

“Implications could stretch beyond the border of Canada,” said Wood MacKenzie Ltd. analyst Afolabi Ogunnaike, who projects output could be curtailed as much as 700,000 barrels a day because of the blaze. “It should strengthen the price for Bakken” crude in North Dakota, he said.

Between 900,000 and 1 million barrels a day of oil sands production may be offline because of the blaze, equal to 35 to 38 percent of the 2.6 million barrels a day average output forecast for this year, Royal Bank of Canada said in a report Thursday. The cut is almost equal to Algeria’s daily production in April, data compiled by Bloomberg show. Alberta oil sands production was about 2.5 million barrels a day in February, according to the province’s oil regulator.

Stockpile Buffer

The province’s high crude inventories will be able to cover any production losses from the Fort McMurray fires, Marcus Waldner, Genscape Inc.’s manager for oil storage, said in an e-mail. According to Genscape, stocks totaled 26.5 million in Alberta Heartland, Edmonton, Hardisty and Kerrobert for the week ended April 29, up about 4 million barrels from a year earlier.

Most major oil sands sites that are near Fort McMurray are concentrated to the north while the fire is to the south. Most of the shutdowns are to allow “workers to deal with personal problems” related to evacuations, Andrew Leach, associate professor of business at the University of Alberta, said in a phone interview. 

Production Sites

Should the fire get near oil sands sites, “there is certainly infrastructure that is close enough to trees that it could be affected” he said, mentioning drilling pads.

The fire has caused the evacuation of more than 80,000 people in Fort McMurray, the town at the heart of the Athabasca deposit, one of three large bitumen reserves that make up Alberta’s oil sands.

Shell shut its 255,000 barrel-a-day Albian Sands mine. Suncor said it brought down its base plant along with its Firebag and MacKay River oil sands operations, shutting in about 300,000 barrels a day. Syncrude Canada Ltd. said its upgrader was running at “minimum levels.” Imperial Oil Ltd. reduced production at its Kearl oil sands and Statoil ASA cut Leismer output by 50 percent.

Nexen shut its Long Lake facility and ConocoPhillips brought down its Surmont operations, the companies said on their websites. Connacher Oil and Gas Ltd. was restoring normal production Thursday after reducing about 4,000 barrels a day of output at its Great Divide project Wednesday.

Pipeline Disruptions

Husky cut production at its Sunrise facility to 10,000 barrels a day from 30,000, company Spokesman Mel Duvall said.

Nexen had already halted its 72,000 barrel-a-day upgrader and had reduced bitumen extraction after a Jan. 15 explosion. Companies including Suncor and Syncrude were performing maintenance turnarounds at their sites prior to the fire, reducing output.

Pipelines also came down. Enbridge Inc. said it shut lines out of the Cheecham terminal. Inter Pipeline Ltd. restored its Polaris system and said its Corridor system was ready to go after curtailing operations the day before.

The shutdowns reduced output from upgraders, pushing up synthetic crude prices by $1.34 to $46.12. Relative to WTI, it was 80 cents stronger at a $1.80 premium.

Disruptions ranging from pipeline attacks to field shutdowns in places like Nigeria, Iraq and Libya have taken 800,000 barrels a day of crude supply offline this year, according to energy-industry consultant FGE. That’s helped global benchmark Brent rally about 60 percent from a 12-year low in January.

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