Canadian oil prices little changed, production shutins increase

NEW YORK (Reuters) - Canadian crude prices were little changed on Friday following a two-day rally as a wildfire in northern Alberta kept nearly one-half of Canadian oil sands production shuttered, forcing BP’s Canadian unit to warn clients of limited availability of oil through the rest of the month.

Smoke billows from the Fort McMurray wildfires as a truck drives down the highway in Kinosis, Alberta, Canada, May 5, 2016. REUTERS/Mark Blinch

The massive fire has forced the evacuation of Fort McMurray’s 88,000 residents, as the town, located in the heart of the oil-producing region of the province, has been overwhelmed by flames.

On Friday, BP’s Canadian unit declared a so-called force majeure event, telling clients available Canadian crude grades will be reduced during May as a result of the fire. BP did not respond immediately to a request for comment.

Oil sands companies have shut about 1 million barrels per day of crude output, according to Reuters calculations, out of Canada’s total oil sands production of 2.2 million barrels a day. Syncrude, located north of the city, said Friday its oil sands project has completely shut extraction at its Aurora bitumen mine; it had already reduced production prior to the fire.

Whether the fire would continue to affect prices was unclear. Most companies had not announced when they expect activity to restart.

“It really depends on how long it takes to get this fire under control and out,” said Jackie Forrest, analyst at ARC Financial in Calgary, of the effect on prices.

“It’s a very difficult situation. If some major service operations (in Fort McMurray) are damaged, the oil sands will still get back online, but it may be at a higher cost than before, maybe having to secure service companies from much further away.”

Suncor Energy Inc, which has taken 350,000 bpd of capacity offline, said it expects to make a prompt return to full production, and planning for restart is well advanced.

The wildfire also stymied transportation of crude and feedstocks normally delivered via trains, pipelines and roads across the vast oil sands, which hold the world’s third-largest crude reserves after Saudi Arabia and Venezuela.

Western Canadian Select (WCS) heavy blend crude for June delivery traded at $11.95 a barrel under the West Texas Intermediate benchmark on Friday, according to Shorcan Energy Brokers. It settled at $12/bbl under U.S. crude on Thursday.

Concerns about temporary shortages boosted light synthetic crude prices on Thursday, as the thinly traded May contract doubled in price. It posted one trade on Friday, with light sweet synthetic trading at a premium of $7/bbl to U.S. crude, same as on Thursday. The June contract traded at a $2/bbl premium to U.S. crude after a handful of trades, compared with a settlement of $2.15/bbl over WTI on Thursday.

The wildfire has forced 10 oil sands operators, including Suncor Energy Inc and Shell Canada to reduce production because workers have had to flee Fort McMurray, and in some cases evacuate operations as a precaution.

More than 20 oil operations are clustered in a 100-kilometer (60-mile) radius of the city, according to government data.

Pipelines have also been affected, raising worries about the delivery of diluent, which is normally blended with the viscous bitumen found in the oil sands to produce Canadian heavy crude.

Editing by Meredith Mazzilli and Cynthia Osterman