By May 9, 2016 Read More →

Fort McMurray wildfire could force prolonged shutdown of oil sands facilities: Producers

Over 1 million bpd offline due to Fort McMurray wildfire


Fort McMurray wildfire

Firefighters may get some help from Mother Nature in their fight against the Fort McMurray wildfire, however, not before a number of oil sands facilities were forced to shut down production. Twitter photo.

By Barani Krishnan

NEW YORK, May 9 (Reuters) – Oil producers and refiners braced on Monday for a prolonged shutdown and possible supply constraints from Canada’s vast oil sands region as a destructive wildfire continued into a second week.

Cooler and possible wetter weather looked to help firefighters battling the massive blaze as Canadian officials planned to take their first look at oil boom town Fort McMurray.

The town has been ravaged by the nation’s most destructive wildfire in recent memory, with about half of the nation’s oil sands capacity remained shut as energy firms kept facilities closed as a precaution.

Officials said resuming operations would be a challenge and no timeline had been considered.

“This production is not gone for good, yet when fires are controlled, restarting production will take several more weeks, even without damage,” energy analysts at Morgan Stanley said in a note. “The situation is fluid.”

The yard of CNOOC unit Nexen’s facility in Long Lake, Alberta, suffered minor damage on Sunday from fire, officials said. It was the first reported damage to an energy industry asset since the crisis began.

Statoil and Husky Energy Inc were among 11 production companies and three pipeline operators that have curbed activities after the inferno that began on May 1 forced more than 1 million barrels per day (bpd) of capacity offline.

Syncrude Canada Ltd will cut forecast crude production volumes for May by some 35 percent, three trading sources familiar with the matter said on Monday.

BP and other big oil firms have already warned that they would not be able to deliver on some contracts.

Oil prices initially rallied 2 percent on Monday before tumbling, with U.S. crude settling down nearly 3 percent and Brent almost 4 percent lower, as the market discounted immediate impact from the Canadian outages.

Investors also focused on U.S. crude stockpiles, which were expected to have built for a fifth straight week last week to record highs.

Canadian crude futures, however, continued to extended their run-up on Monday, with Western Canadian select for June trading at the narrowest discount to the U.S. benchmark since June 2015.

Until last month, global oil prices had seen one of the strongest rebounds since the financial crisis, with Brent rallying nearly 80 percent at one point from multiyear lows under $30 in the first quarter, supported by falling U.S. production, supply constraints in Libya and the Americas and a weak dollar.

The rally has since faded as record pumping of oil by Russia and major Middle East producers renewed worries about a global glut of some 1.5 million bpd that originally drove prices down from above $100 a barrel in mid 2014.

Some analysts said the Canadian outages could still support prices down the road.

The Canadian Red Cross is supporting the people of Fort McMurray forced from their homes by wildfire. Please click here to donate.

The Canadian Red Cross is supporting the people of Fort McMurray forced from their homes by wildfire. Please click here to donate.

“A loss of 1 million bpd spread over a month’s time would represent a sizable 30 million barrels that would not necessarily be negated by an upswing in crude imports into the U.S. Gulf coast region,” said Jim Ritterbusch of Chicago-based oil consultancy Ritterbusch & Associates.

The United States imports about 3.5 million barrels a day of Canadian crude, which is particularly important for U.S. refiners from Ohio to the Dakotas.

Record U.S. inventories and plentiful supplies in storage in western Canada will offset some of the losses from the blaze. But prolonged outages in the oil sands, which has the world’s third-largest crude reserves, could roil producers and traders’ contracts and order books.

On Friday, BP Plc , Suncor Energy Inc, the largest Canadian oil producer, and U.S. refiner Phillips 66 issued “force majeure” notices that would prevent them from delivering on some contracts for Canadian crude.

According to Genscape, which monitors key crude storage terminals in western Canada, including critical locations in Edmonton and Hardisty, total inventories were 26.5 million barrels at the end of April, equivalent to less than a month of output currently offline.

“We are going to see this impacting flows, not necessarily right away, but over the next few weeks,” said Matt Smith, who tracks crude cargoes for New York-based Clipper Data. “An outage of this volume is going to have a supportive influence on the market.”

(Additional reporting by Allison Martell in Toronto; Editing by Jeffrey Benkoe and Alan Crosby)

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