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.
Plains said it had no indication when it could reopen the southern leg of the 187,000 barrel a day Rainbow line. It was unlikely to start on Thursday, a spokeswoman said.
An evacuation order remains in effect for the area around the line, which takes oil to the Edmonton pipeline and refining hub from near the Pelican Lake region.
Canadian heavy crude prices on the cash market have stuck to a discount of around $17 a barrel to the U.S. benchmark West Texas Intermediate price since before the fires, an indication that the market is anything but short following months of export pipeline restrictions, said Judith Dwarkin, chief economist at Ross Smith Energy Group.
“There are still some barrels sloshing around available to be sold, which is a counter to the market tightening because of production being shut in,” Dwarkin said.
Enbridge Inc has limited shipping volumes on its major pipeline network to the U.S. Midwest as it increased testing and maintenance following two ruptures last year.
Meanwhile, synthetic crude prices already fetched a rich premium due to the outage of Canadian Natural’s Horizon oil sands project following an explosion and fire early this year and a recently started upgrader turnaround at Suncor Energy Inc’s operation.
So far, nearly 1,916 square km (740 square miles) have burned, forcing the evacuation of Slave Lake and at least four small aboriginal communities.
Prime Minister Stephen Harper is scheduled to visit Slave Lake on Friday.
The largest concentration of fires is in the Lesser Slave Lake and Fort McMurray regions. Forecasters are calling for rain in those areas on Friday, although the there is a danger of lightning, which could start more fires.
North of Fort McMurray, Royal Dutch Shell Plc said on Thursday it had restricted personnel at its Muskeg River and Jackpine oil sands mines, which produce 255,000 barrel a day, because of heavy smoke. Production has not been affected, the company said.
It joins Syncrude Canada and Canadian Natural in removing workers from oil sands sites.
Reporting by Jeffrey Jones; editing by Rob Wilson