March 16, 2017 / 7:58 PM / 9 months ago

UPDATE 2-Syncrude fire extinguished, synthetic prices leap on output cut

(Adds Syncrude production cuts, market reaction)

By Nia Williams

CALGARY, Alberta, March 16 (Reuters) - Syncrude Canada notified customers on Thursday that its oil sands plant in northern Alberta would cut production by more than 50 percent in March and April after a fire this week, four trading sources said.

News of the reported production cuts boosted the premium of light synthetic crude from the oil sands for April delivery, which had already soared to its highest premium over U.S. crude in nearly a year. Syncrude spokesman Will Gibson declined to comment.

The fire, extinguished on Thursday morning, had raised concerns in the market over tighter supply. The fire broke out on Tuesday afternoon after a line failure caused a treated naphtha leak, prompting an evacuation of the Syncrude site. One worker was injured but in stable condition at the Edmonton hospital.

On Thursday, the trading sources said the company notified customers that it was going to reduce volumes by more than 50 percent this month and next, which comes out to be roughly 6 million and over 5 million barrels, respectively.

Syncrude said in a statement earlier in the day that crews were still working to fully isolate the affected area of the Mildred Lake upgrader to allow safe entry to assess damage and develop a repair strategy.

“In addition, this will enable both Syncrude and agencies, including Alberta Occupational Health and Safety, to conduct full investigations to understand exactly what happened and help prevent future incidents,” the company said.

Other operations remained stable at the 350,000 barrel per day mining and upgrading facility roughly 40 kilometres north of the oil sands hub of Fort McMurray. It processes mined bitumen into refinery-ready synthetic crude.

On Tuesday, firefighters brought the blaze under control within hours but it was allowed to burn through Wednesday to get rid of residual fuel. Several upgrader units were shut or running at reduced rates, while mining and extraction were being paced to balance lower bitumen demand, the company said.

Light synthetic crude from the oil sands for April delivery surged to $4.00 a barrel over the West Texas Intermediate benchmark in illiquid trade, according to Shorcan Energy brokers. It was the highest since the end of May, when the premium spiked as uncontrolled wildfires in the region forced a number of oil sands plants to shut down as a precaution.

It had settled on Wednesday at $1.90 a barrel over U.S. crude.

Syncrude is majority-owned by Suncor Energy, while Imperial Oil provides operational, technical and business management support.

Reporting by Nia Williams in Calgary, additional reporting by Catherine Ngai in New York; Editing by David Gregorio

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