WTI Oil Flirts With Brent Premium as Canada Fires Cut Supply

  • Blaze cut oil-sands output by about 1 million barrels a day
  • New York oil trades as much 15 cents above Brent on Monday

Oil in New York erased its discount to international prices amid speculation reduced supply from Canada because of wildfires will accelerate the seasonal drop in U.S. crude stockpiles.

West Texas Intermediate for July delivery on Monday rose higher than Brent in London for a third straight session in intraday trading, advancing as much as 15 cents above the global benchmark. Futures on the New York Mercantile Exchange fell 1.5 percent to $43.98 at 10:44 a.m. after earlier climbing as much as 2.9 percent. The fires led to cuts equivalent to about 40 percent of oil sands production from Canada, the biggest supplier to the U.S.

“We have supply issues coming out of Alberta and that’s affecting the confidence about Canada providing supply down through Cushing,” Jonathan Barratt, the chief investment officer at Ayers Alliance Securities in Sydney, said by phone.

The reduction of Canadian oil to the U.S. -- which imported about 3.17 million barrels a day last year from its northern neighbor -- is near-term bullish amid a seasonal drop in crude inventories, Morgan Stanley said in a report Monday. America’s peak summer driving season begins on Memorial Day, which falls this year on May 30, and typically results in a reduction of stockpiles as refiners maximize gasoline output.

It’s hard to say how quickly oil sands output can come back online, according to a research note Monday from Goldman Sachs Group Inc.

The industry’s Alberta facilities have suffered little damage and weather conditions over the weekend helped firefighters, wrote the analysts, led by Damien Courvalin. “However, the complete evacuation of personnel and of the city of Fort McMurray, and potential damage to service providers based there, point to a more gradual recovery," they said.

U.S. Inventories

Assuming a 10-day ramp-up in activity, Alberta production could be down by 650,000 barrels a day over three weeks, or almost 14 million barrels in total, according to Goldman Sachs. That “will help accelerate the decline in U.S. crude inventories and the already occurring decline in total U.S. oil stocks."

Commercial U.S. crude inventories have swelled to 543.4 million barrels, the most since October 1929, according to data from the Energy Information Administration. Supplies at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, are near a record.

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