Canada oil markets absorb fire-induced output cuts

Thu May 19, 2011 4:41pm EDT
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By Jeffrey Jones

CALGARY, Alberta (Reuters) - Alberta's wildfires, which have chopped oil output in the northern part of Canada's biggest producing province, will have to restrict far more crude for a longer period before there is a major market impact, analysts said.

There was no indication of that on Thursday, as the number of fires raging through forested areas fell dramatically. Wildfires whipped up by high winds destroyed about 40 percent of the energy and forestry town of Slave Lake early this week and more than 7,000 people, nearly all its residents, remain evacuated.

More than 100,000 barrels a day of heavy oil output is stranded in the north-central part of Alberta as fires keep a main shipping artery, Plains All American Pipeline LP's Rainbow pipeline, shut down.

Still, Canadian crude oil prices have moved little since before the fires flared up last weekend as it is a small portion of Canada's 2.8 million barrels of daily production and there is ample supply in storage.

"There's the question of how long this is going to last. If it only lasts a week and then everything is back on line, then it's going to be fine," FirstEnergy Capital Corp analyst Michael Dunn said.

"But if it lasts longer and the fire sweeps eastward and gets to the Cold Lake area, that's really where the majority of the (thermal oil sands output) is coming from right now."

The number of fires burning in Alberta fell by 17 to 70 in the past day, with 18 still out of control, according to provincial authorities. About 1,000 firefighters are battling blazes.

Companies such as Cenovus Energy Inc, Canadian Natural Resources Ltd and Penn West Exploration have either stopped production in the Pelican Lake region or slowed it to a trickle as their tanks filled up.   Continued...

<p>A fire-fighter from the Strathcona fire department searches for spot fires in a destroyed neighborhood in Slave Lake, Alberta May 16, 2011. REUTERS/Todd Korol</p>