Nature has its own way of taking over where man fails. And so too when it comes to oil prices. Oil in Canada has dropped precipitously over the last few years and despite unsuccessful efforts taken by the government to turn them around, it took an out-of-control intense fire in Alberta to send oil prices soaring.
The wildfire in Canada’s oil sand region has been raging for more than four days swallowing up well over a third of the country’s daily oil production and jumping Brent crude oil prices 1.8 per cent to $45.47. West Texas Intermediate crude, the US benchmark, swelled 1.2 per cent to $45.92, sending Canadian crude futures rallying to their highest in months from the production cuts.
The flames engulfing the fields in Alberta seemed to be coming under control Monday but oil producers and refiners are concerned of additional supply restrictions as a result of the wildfires that have closed down one half of Canada’s vast oil sands capacity and fear they will not be able to deliver on some of their contracts.
The United States imports about 3.5 million barrels a day of Canadian crude, which is particularly important for refiners in the U.S. Midwest ranging from Ohio to the Dakotas. Over supplies in U.S. inventories and in storage in Western Canada will offset some of the loss from the blaze. But prolonged outages in the oils sands, which have the world’s third-largest crude reserves, could cause a ripple effect among producers and traders’ contracts.
According to Genscape, which monitors key crude storage terminals in Western Canada, the total number of inventories at the end of April was 26.5 million barrels, equivalent to less than a month of output currently falling behind.
Globally, the oil market has risen about 75 percent since hitting 12-year lows of around $27 or lower in the first quarter of 2016, buoyed by falling U.S. production, unexpected supply constraints in Libya and the Americas as well as a weaker dollar.
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