Crude Summit: Canadian cuts deeper than thought

Canadian crude producers roughly doubled government targets for output cuts that began this month, according to US independent refiner Phillips 66.

Producers reduced output by 600,000-650,000 b/d in response to provincial government efforts to address logistical constraints backing up production and forcing deep discounts in Alberta, Phillips 66 senior vice president of marketing and commercial Brian Mandell said on the sidelines of the Argus Americas Crude Summit in Houston, Texas.

Alberta imposed rules seeking a 325,000 b/d, or 9pc, reduction in a program that also pursued railcars to swiftly clear the backlog of especially heavy sour production in the province.

The cuts would relax through 2019 until "excess storage" fell, according to the government. Canadian producers split on the decision, with some welcoming efforts to rein in overproduction and others preferring the market compel the response. Exports to the US have remained steady or grown, according to preliminary Energy Information Administration (EIA) data, as the province works to clear crude in storage.

Discounts for Western Canadian Select (WCS) heavy, sour crude narrowed dramatically in recent months. The differential to March Nymex CMA WTI narrowed to single digits this month, compared to a $27.50/bl discount in the same month last year and a nearly $50/bl discount last fall. Canadian producers would seek to rebalance the cuts as the sharp increase in prices has discouraged costlier rail movements and even made pipeline shipments briefly unprofitable, Mandell said. Discounts should widen again in the second quarter, and could be further complicated by planned provincial elections in May, he said.

Phillips 66 was the single largest importer of Canadian crude in 2017, the most recent full year of data from the Energy Information Administration.