Oil Rises Second Day Amid Canadian Wildfires, U.S. Output Drop

  • Alberta wildfires seen having short-term impact on production
  • U.S. oil output dropped to lowest since September 2014

Oil rose for a second day as wildfires in Canada cut oil-sands production and U.S. output declined the most in eight months.

A wildfire in the heart of Canada’s oil-sands-producing region has forced oil companies to cut production. U.S. output slid to the lowest since September 2014 last week, according to government data released Wednesday. Iran, which refused to join other nations in a push to freeze output in April, could be ready to start discussions on production quotas within one or two months, according to an official from the state oil company.

Oil companies have been forced to evacuate workers and shut in production in Canada due to the worst wildfire in Alberta history. Suncor Energy Inc., Royal Dutch Shell Plc and Husky Energy Inc. are among those that have shut plants or curbed output. Connacher Oil and Gas Ltd. said it is bringing production back to normal levels at its Great Divide site. Some analysts see only a short-term impact on prices due to the reduction in output.

“It’s more of a short-term event,” said Paul Crovo, a Philadelphia-based oil and equity analyst at PNC Capital Advisors. “You get this initial bump because you’ll have some near-term supply outages, but once those fires dissipate and oil workers return to those facilities, there is not expected to be any long-term implications."

West Texas Intermediate for June delivery rose 54 cents, or 1.2 percent, to settle at $44.32 a barrel on the New York Mercantile Exchange after climbing 5.2 percent earlier. Total volume traded was about 24 percent above the 100-day average.

Brent for July settlement climbed 39 cents, or 0.9 percent, to end the session at $45.01 a barrel on the London-based ICE Futures Europe exchange. Brent’s premium over July WTI narrowed to 10 cents, the smallest since March.

High Inventories

High crude inventories in Alberta tanks will be able to cover any production losses from the Fort McMurray fires, Marcus Waldner, Genscape Inc.’s manager for oil storage, said in by e-mail. According to Genscape, stocks totaled 26.5 million in Alberta Heartland, Edmonton, Hardisty and Kerrobert as of April 29, 4 million barrels higher than a year ago.

Oil production in the U.S. slid by 113,000 barrels a day to 8.83 million, according to a report Wednesday from the Energy Information Administration. That’s the biggest weekly drop since August 2015. Nationwide crude inventories increased by 2.8 million barrels to 543.4 million, the most since 1929.

The decline in U.S output was “ignored earlier in the week mainly because the inventory numbers were bearish, but nonetheless, there’s a general view that the supply-demand fundamentals are going to start looking more like they are headed toward a balance,” Bart Melek, head of global commodity strategy at TD Securities in Toronto, said by telephone.

Oil has rebounded after slumping to the lowest since 2003 earlier this year amid signs the global glut will ease as U.S. production falls. While Iran may soon be open to discussions with other members of the Organization of Petroleum Exporting Countries, there isn’t currently a proposal to revive output limits at its June meeting and delegates from the group said such action may no longer be necessary as the market improves.

Iran could reach its pre-sanctions export level of 2.2 million barrels a day by the end of the summer, National Iranian Oil Co. Managing Director Rokneddin Javadi said in Tehran. Exports averaged 2.1 million barrels a day last month out of total production of 3.7 million, he said.

“The oil market, as we move into the second half of the year, looks better and trends toward a balance,” Melek said. “That should propel prices toward $60.”

More oil-market news:

  • Iraq’s Kurdish region exported about 511,888 barrels per day of crude in April through pipelines to the port of Ceyhan in Turkey, according to the Ministry of Natural Resources.
  • Chevron’s Okan facility in the Niger Delta was shut after the offshore facility was breached on Wednesday, according to the company.
  • The U.S. shale boom that cut crude imports by 32 percent in a decade isn’t being felt out west as California grows increasingly dependent on Middle East supplies.
  • Saudi Arabian Oil Co. raised prices for crude grades to Asia by the most since April 2015, a sign that the world’s biggest exporter may be expecting demand to recover.
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