Alberta’s oil production cut
On December 2, Rachel Notley, Premier of Alberta, announced a reduction of 8.7% or 325,000 barrels per day of raw crude oil and bitumen in Alberta’s production. After a significant reduction in the storage, authorities might lower the production cut to 95,000 barrels per day in December 2019. On December 3, the gap between the WTI and WCS (Western Canada Select) price contracted by ~$4 per barrel.
So far, the average gap between the WTI and WCS price has widened more than 50% in the fourth quarter—compared to the previous quarter.
The fall in the utilization of the Midwest Refinery Operable Capacity last month might have widened the gap between these two grades of oil apart from pipeline constraints. Canadian oil accounts for 99% of Midwest refiners’ input. Midwest refiners consume 63.9% of the total Canadian oil input to US refiners. Canadian oil exports to the US account for 99% of its total oil exports.
Upstream stocks that could be impacted
Devon Energy (DVN) has significant exposure to Canadian heavy oil production. On December 3, Devon Energy rose 6.4%—the highest among the upstream stocks that form the S&P 500 Index (SPY). ConocoPhillips (COP) is another US upstream stock that could to benefit with contraction in the WTI-WCS spread.
On December 3, HollyFrontier (HFC) fell 5.8%. In PADD 2 (Petroleum Administration for Defense Districts) or the Mid-Continent, HollyFrontier has its highest crude charge capacity of 300,000 barrels per day. Phillips 66 (PSX) fell 1.5% in the last trading session. Phillips 66 also has refining assets in the Mid-Continent.