With prices fetched by Alberta heavy oil on the rise, the provincial government Wednesday reduced mandatory production cuts to 250,000 b/d from the 325,000 b/d ordered on Dec. 2.
The Canadian counterpart to quotas set by the Organization of the Petroleum Exporting Countries has been “instrumental” in paring deep discounts inflicted on Alberta output, said a government statement.
The trademark Alberta heavy crude product, Western Canada Select (WCS), was trading at about 17% below the North American light oil benchmark West Texas Intermediate. At this time a year ago the discount, aka differential, in the Canadian industry was 43%.
The chief victim of deep discounts for Alberta heavy crude is Canada’s top user of natural gas, thermal oilsands production.
For February and March, the Alberta government announced a provincial production quota of 3.63 million b/d, up from 3.56 million b/d in January. Alberta Premier Rachel Notley said, “This temporary measure is working.”
The policy is intended to limit the WCS price differential to a quality discount by preventing an excesses of production over pipeline and railway shipping capacity, which enable buyers to command fire-sale bargains.
The output restraint has to date reduced a surplus in Alberta storage tanks by 5 million bbl to 30 million. During a planned year of production controls, the provincial government is investing in a railway tank car fleet and supporting pipeline expansions.