Canadian crude prices have surged to trade at the smallest discount to U.S. oil in a decade, marking an early success for provincial-government efforts to cap supply and boost the country’s income.
A blend of Canadian crude has rallied 40% since early December, when the government of the oil-rich province of Alberta forced producers to cut output by nearly 9% in a bid to lift depressed prices. Prices for Western Canadian Select traded at $44.71 a barrel on Wednesday, according to S&P Global Platts.
‘The forced cuts caught us all by surprise. Most people, including myself, saw no hope for Canadian differentials for another year or so.’
The provincial government directed the cuts after Canadian crude prices traded at a steep discount to U.S. oil, reaching a record difference of more than $51 a barrel in October. By Friday, that gap had narrowed to less than $7, the lowest since March 2009, according to RBC Capital Markets.
Canadian crude has rebounded on expectations that the cuts will help draw down inventories, and likely was aided by a scramble among traders to cover short positions on physical barrels. But some analysts say that the government cap, which is set to expire at the end of the year, will only act as a temporary fix for Canada’s problems, leaving the risk that prices can fall again.
Alberta’s mandated curtailment—an extraordinary intervention in Canada, the fourth-largest oil producer in the world—was criticized by large oil producers in the province including Suncor SU, +1.82% and Exxon Mobil XOM, +0.79% -controlled Imperial Oil Ltd. IMO, +0.80% , as an unwarranted interference in free markets.