US output drop, Canadian wildfire increase crude oil price

For a second day, oil prices increased as Canada’s oil sands region wildfire cut production and US output declined the most in eight months.

The worst wildfire in the history of Alberta has forced oil companies to evacuate workers and shut in production. 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.

Genscape Inc.’s manager for oil storage, Marcus Waldner, said in an email that high crude inventories in Alberta tanks will be able to cover any production losses from the Fort McMurray fires.

According to a report from the Energy Information Administration, oil production in the US slid by 113,000 barrels a day to 8.83 million. That is the biggest weekly drop since August 2015. Nationwide crude inventories increased by 2.8 million barrels to 543.4 million, the most since 1929.

Bart Melek, head of global commodity strategy at TD Securities in Toronto, said the US output drop was ignored earlier in the week because the inventory numbers were bearish but there’s a general view that the supply-demand fundamentals are headed toward a balance.

Oil has rebounded after slumping to the lowest since 2003 earlier this year amid signs the global glut will ease as US 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 RokneddinJavadi said in Tehran. He said exports averaged 2.1 million barrels a day last month out of total production of 3.7 million.

“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 US$60.”

Source: Bloomberg