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Alberta to ease mandatory cuts in oil production



The Canadian province of Alberta will reduce oil reductions in February and March earlier than expected, saying on Wednesday its rare step to limit production has eased excess oil.

Alberta's move to reduce its reductions came at the end of a volatile month, when Canadian prices improved dramatically, but producers were affected disproportionately.

US refineries are also struggling to find a substitute for Venezuelan heavy oil – similar to that produced by Alberta – over US sanctions against the country's state oil company.

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Alberta oil prices fell in October, dropping compared to US futures prices due to congested pipelines that backed oil in storage tanks and triggered reductions.

"We're not out of the woods yet, but this temporary measure is working," Premier Rachel Notley said in a statement.

The province said it will put output for February and March at 3.63 million barrels per day (bpd), up 75,000 bpd from January.

Storage levels have dropped 5 million barrels to a total of 30 million barrels since declines were announced in December, faster than expected, the provincial government said. They have dropped about 1 million barrels a week this month, he said.

The oil cuts prevented the disaster for many small producers who were selling crude oil in some cases below cost.

But they split big producers, illustrating the confusing task the government faces. Producers without refineries, such as Cenovus Energy Inc and Canadian Natural Resources Ltd, pressed Alberta last year to impose restrictions.

Those with processing capacity – Suncor Energy Inc, Husky Energy Inc and Imperial Oil Ltd – benefited from the cheap oil operation through their refineries and opposed the move.

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There were also unintended negative consequences. Canadian Natural Resources said in a Jan. 22 letter to service providers that the change made in Alberta at the end of December as per-company production resulted in a larger share of production cuts than others.

Cuts do not apply to small businesses that produce less than 10,000 bpd.

Mitigation cuts could encourage oil producers to sign contracts to send more oil by rail, Greg Pardy, an analyst with RBC Dominion Securities, said in a statement.


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