A relatively small mandated oil production cut of 200,000 to 300,000 bbls/d would “make a big difference” helping to reverse the dramatic recent drop in the Canadian heavy oil price, says Auspice Capital founder and CEO Tim Pickering.
It’s something that every other major global oil producing nation has a mechanism to enact, even the U.S., he added.
There’s a hot debate underway on the matter, with upstream focused companies advocating for cuts while integrated operators prefer to wait it out. Alberta Premier Rachel Notley says the province is considering mandating cuts. Opposition leader Jason Kenney says he would prefer to see a market-based solution where oil producers cut on their own.
It has been argued that the market isn't working, Pickering says, but the issue goes beyond the market.
“There’s a systemic problem with our situation. The systemic problem is we don’t have the infrastructure, the takeaway and the ability to access more than one buyer,” he told JWN on Tuesday.
“We’re the only large producer nation in the world that doesn’t have a mechanism to control production. Even in the United States, the most free economy in the world, they have a mechanism. They have [the ability to] export and they have the Strategic Petroleum Reserve.”
The price of Western Canadian Select dropped to a record low $13.46/bbl last week and remains more than $35/bbl below WTI.
“There’s no quick fix; you can’t build a pipeline tomorrow, you can’t add rail capacity tomorrow, you can’t get rid of the glut just by snapping your fingers,” he said, adding that a mandated production cut “isn’t necessarily a quick thing either, but it’s the quickest of things.”
It’s estimated that the discount on Canadian oil caused by pipeline bottlenecks now costs producers and the Canadian economy as much as $84 million per day, the province said last week.
“It’s foolish. Why are we producing all of this oil and giving it away?” Pickering said.
Producers including Cenovus Energy, Canadian Natural Resources, Devon Canada, MEG Energy and Athabasca Oil Corporation have announced voluntary cuts that are expected to total about 130,000 bbls/d in the fourth quarter.