Canada’s Oil Cuts Offer Lifeline To Producers But Create New Problems

The Canadian province of Alberta’s OPEC-style decision to force production cuts is benefiting oil companies with higher prices, but it is also pushing capital elsewhere and threatens to undermine booming crude-by-rail shipments.

After Alberta cut 325,000 barrels per day (bbl/d) starting this month, the discount on Canadian heavy oil compared to benchmark U.S. crude oil shrank to less than $7 per barrel (bbl) from more than $40/bbl in October, providing relief for producers.

But drilling activity has dropped sharply in the last year, hurting service providers, and the shrinking discount reduces incentive for shippers to move crude by rail, which is costlier than pipelines. Some producers have already decided to spend more in other provinces.