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NEW YORK (Reuters) - BP PLC said on Friday it would not be able to deliver on some contracts for Canadian crude due to a wildfire that has cut Canada's oil sands output in half and snarled supply lines.
The oil major's Canadian unit alerted customers of a "force majeure event" at one of its suppliers, a BP spokesperson said, which means several grades of Canadian crude oil will not be as readily available for its customers through the rest of May.
A force majeure event is an unforeseen event that prevents a party from fulfilling a contract. The move is likely to deepen concerns about tightening supplies of crude to U.S. refiners as the nearly week-long blaze rages on.
The force majeure comes after the fire this week forced the evacuation of 88,000 people from Fort McMurray, located in the heartland of Alberta's energy region, and resulted in the shutdown of about 1 million barrels per day in production, nearly half of Canada's oil sands output.
At least 10 oil sands operators have reduced production as a result of the evacuations and emergency measures have complicated delivery of oil via rail, pipeline and highways.
The production cuts caused key Canadian crude prices to rally to their highest in months and boosted U.S. futures this week.[CRU/CA] [O/R]
BP produces oil in Canada via a partnership with Husky Energy Inc.
Husky said earlier this week it cut production at its Sunrise oil sands project to 10,000 bpd from 30,000 bpd after a pipeline that supplies the project with diluent was shut down.
BP also buys oil from other producers to sell to refiners or other traders.
A person familiar with BP's U.S. refining operations said supplies to its U.S. plants - Whiting, Cherry Point and Toledo - have not been affected.
The United States imports about 3.5 million barrels per day of Canadian crude, the largest supplier to one of the world's biggest energy markets.
Record U.S. inventories and plentiful supplies in storage in Western Canada will offset some of the shutdown, but prolonged outages in the region, which has the world's third-largest oil reserves, could roil producers and traders' contracts and order books.
"There is a cushion because we have a lot of oil in storage," said Tim Pickering, founder and CIO at Auspice Capital Advisors in Calgary.
"When that cushion is gone, if this lasts a month, the price of oil on a global basis will react."
According to Genscape, which monitors key crude storage terminals in Western Canada, including the critical locations at 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.
Canadian crude is particularly important for refiners in the U.S. Midwest ranging from Ohio to the Dakotas. U.S. refiners interviewed by Reuters in the last few days have so far not said it was affecting their operations.
Reporting by Catherine Ngai; additional reporting by David Gaffen and Jessica Resnick-Ault; Editing by Josephine Mason and Andrew Hay