Alberta Politics
Alberta Premier Rachel Notley had reason to smile Monday (Photo: David J. Climenhaga).

The Day After: Alberta heavy crude prices squirt upward in wake of Rachel Notley’s production cap announcement

Posted on December 04, 2018, 1:16 am
6 mins

It was nice for Alberta’s New Democratic Party Government that the first thing the price of Alberta heavy crude did the morning after Premier Rachel Notley’s announcement her government would cap production of Alberta oil by 8.7 per cent for three months was to squirt upward.

United Conservative Party Leader Jason Kenney (Photo: David J. Climenhaga).

On Friday night, Western Canadian Select was trading at $21.93 US per barrel. By the end of the day yesterday, the Alberta heavy crude from the oilsands was up to $29.95 US. That’s an increase of more than 36 per cent basically overnight, two nights if you want to be picky about it.

It’s an increase of nearly 126 per cent since Alberta heavy crude bottomed out at $13.27 in the middle of last month. Needless to say, that considerably narrows the gap with West Texas Intermediate, the proximate cause of all the hysteria in the oilpatch and all the political offices that pay it heed.

Astonishingly, the first instinct of the Canadian business press appeared to be to give Premier Notley credit for the upward momentum, and for the fact stocks of bitumen-producing companies were soon bobbing along in the same direction.

Freedom Conservative Party Leader and sole MLA Derek Fildebrandt (Photo: David J. Climenhaga).

You can count on it, though, everyone will soon have a theory about why this happened – and people who don’t like Ms. Notley’s NDP government for whatever reason will have theories that say her policy announcement had little to do with it.

Perhaps Jason Kenney, the leader of Alberta’s United Conservative Party Opposition will claim that stocks would have gone up even more if the NDP had taken his advice and capped production by 10 per cent, instead of 8.7.

Whatever. For the rest of us this suggests that commodities markets may actually behave rationally from time to time – something that anyone who pays attention to business news has plenty of reason to doubt.

Alberta Party Leader Stephen Mandel (Photo: David J. Climenhaga).

And it indicates that most market fundamentalist politicians, like Mr. Kenney, are fair-weather fundamentalists who are always willing to look for an unexpected market failure if that’s what their friends in the corporate sector need.

This is mildly comforting, even if it’s a little hypocritical, to those of us who put evidence ahead of ideology and recognize that market failures are an everyday occurrence and we need governments to step in from time to time, not only to restore sanity as in the present circumstances, but to prevent us from all going crazy in the first place. There’s a term for this: regulation.

Shares of companies like Cenovus Energy Inc. and Canadian Natural Resources Ltd. that were suffering because of the yawning price differential between Western Canadian Select and the benchmark crude from Texas were buoyant. Those of corporations like Suncor Energy Inc. and Husky Energy Inc. with their own refineries south of the 49th Parallel, not so much.

Imperial Oil President Rich Kruger (Photo: Economic Club of Canada).

So expect more sniping from the corporations that had been making out like proverbial bandits, like that in Imperial Oil Ltd.’s sour news release Sunday night. It lamely tried to make a case that the Notley Government’s decision to actually act like an owner for the first time since Peter Lougheed was premier “sends a negative message to investors about doing business in Alberta and Canada.”

Well, good try. You have to give Imperial CEO Rich Kruger points for trying. It’s what his shareholders pay him to do, you could argue. But his claim won’t hold much water with most Albertans, regardless of their political stripe.

Bonus points to Derek Fildebrandt, the former fair-haired boy of the Alberta conservative movement kicked to the curb by Mr. Kenney for his various misadventures, for bragging he’s the only MLA still fighting “oil supply management” – a characterization he obviously picked up from reading this blog. (You’re welcome, Derek!)

The Strathmore-Brooks MLA said his tiny Freedom Conservative Party “is proud to be the only party in Alberta standing up for free enterprise.” This will get up the noses of some of his erstwhile allies in the UCP benches.

Nevertheless, taking this position should stand him in good stead to run as a candidate for Maxime Bernier’s sour grapes People’s Party of Canada in the likely event he loses his seat in the provincial general election next spring.

Credit for coming up with an alternate theory first, however, must go to Stephen Mandel of the Alberta Party for claiming the NDP took too long, and the UCP wanted to as well, when he would have rushed in immediately, presumably without consulting anybody.

16 Comments to: The Day After: Alberta heavy crude prices squirt upward in wake of Rachel Notley’s production cap announcement

  1. Walter

    December 4th, 2018

    Can anyone explain how a lack in pipeline capacity causes lower prices for Alberta
    oil? If supply and demand affects commodity prices, you’d think that a scarce commodity
    would be more expensive. This doesn’t seem to apply to Alberta oil. Why? Repeated reports and
    news stories parrot the claim that a lack of pipelines causes low prices, but I haven’t seen
    one yet that explains why that’s the case.

    • Rocky

      December 4th, 2018

      The law of supply and demand is suspended when you want a pipeline, just as the law of gravity is suspended when you want your pigs to fly.

    • Mike in Edmonton

      December 4th, 2018

      You’d have to look at the oil buyers’ side of the equation, Walter. there’s some demand in US refineries that have converted (at great expense) to process bitumen. But overproduction and “air barrels” (overbooking by producers) reduces shipping capacity, making delivery on time harder. That–plus shutdowns of a couple US refineries–is why US buyers don’t want to pay for what’s basically the gunk at the bottom of the oil barrel. NOTE: I read about TCPL’s Line 3 being overbooked, but can’t remember where I found the article.

      As for overproduction–that’s Ralph Klein’s fault. His “1% royalty while you’re building new plants” was over-successful by a factor of 10. The oil patch was flooding their bitumen market for years before this “crisis.” Now late-comer Teck Resources is trying to make the problem even worse. (Depend on it, they’ll get their chance.) I hope your grandkids can get good jobs, because Albertans will be paying for this whole mess for the next five decades.

    • Mike in Edmonton

      December 4th, 2018

      OK, found it! From the Tyee web site and Andrew Nikiforuk:

      An answer to the oft-repeated mantra of “the pipeline will increase prices” (OK, it MIGHT, a bit, but the differential isn’t going away ever):

      And this one’s disturbing:


    • Camjournal

      December 5th, 2018

      Walter: Yes essentially a barrel of oil is a barrel of oil at the Gulf Coast refineries but the over-supply is in Alberta not the Gulf Coast. Here in Canada is where the so-called supply and demand creates the differential. Energy markets are
      incredibly complicated but I think that’s the explanation here.
      A slightly different example is as DJC has pointed out the shale oil boom is limited, when it peters out that should increase demand at the Gulf Coast refineries for all crude oils, WCS included. But I don’t like predicting the future – anyone remember “Peak Oil.”

    • Rob McEchren

      December 6th, 2018

      Mike lays out the case pretty well. I would also add that prices are no longer driven by supply and demand issues, it’s largely based on derivatives, and derivatives of derivatives. The abundance of ‘paper barrels’ compared to ‘wet barrels’ has grossly distorted pricing for some time now.

  2. Geoffrey Pounder

    December 4th, 2018

    “Most market fundamentalist politicians, like Mr. Kenney, are fair-weather fundamentalists who are always willing to look for an unexpected market failure if that’s what their friends in the corporate sector need.”

    The fossil fuel industry depends on market failure. Indeed, it is unviable without it.
    Fossil fuel producers and consumers largely externalize environmental and health costs — use the sky as a free dump. This distorts the price mechanism and subverts the free market. A massive invisible subsidy.

    Desperate to preserve its profits — indeed to survive — the fossil fuel industry has campaigned for decades to defend this voodoo economics.
    Big Oil just spent millions of dollars on a campaign to defeat a carbon tax plan in Washington State.
    Fossil fuel and utility companies spend millions of dollars on lobbyists to prevent renewables from entering the market.
    Millions more on climate-change-denial campaigns.
    Millions more on lobbyists to delay or weaken regulations.

    Nobel-Prize winning economist Paul Krugman on “predatory delay”:

    “Earth, Wind and Liars”
    “In the long run, these tactics probably won’t stop the transition to renewable energy, and even the villains of this story probably realize that. Their goal is, instead, to slow things down, so they can extract as much profit as possible from their existing investments.
    “… Every year that we delay the clean-energy transition will sicken or kill thousands while increasing the risk of climate catastrophe.
    “The point is that Trump and company aren’t just trying to move us backward on social issues; they’re also trying to block technological progress. And the price of their obstructionism will be high.”

    We know which side of the battle Notley is on. How about you?

  3. theo nelson

    December 4th, 2018

    Minor comments from a minor mind.

    Premier Notley and the NDP were elected to govern Alberta for the benefit of ALL its residents. To do that, they must be in power. A single term victory and then losing to go back to the crap governance the the UCP will do is unacceptable. To not lose, and be the governing party for a second term, the NDP must do everything it can to ensure a healthy economy regardless of the long term effects. The fact that our economy is tied so strongly to fossil fuels I am sure causes substantial guilt for the NDP in regards to climate change. However, it is not the NDP that made that boat. The Conservatives did that through their crap governance. The NDP has to sail that boat now regardless of climate change. Their job is to look after the province and its residents RIGHT NOW.

    In Canada, it is the federal government that can push long term climate change policy on the country. That option is not available to the Alberta NDP.

    • Jerrymacgp

      December 5th, 2018

      This is a well-written cogent counter-argument to the environmental absolutists that are frequent commenters here, and who rant against the Notley-led Alberta NDP government as being no better than either its current right-wing rivals or its PC predecessors. The NDP has made a number of positive, common-sense changes to the public policy climate in Alberta, protecting everyone from farm workers to home buyers, and all of that would be jeopardized by a UCP victory next Spring. The price they had to pay was to be pragmatic and practical on the oil & gas industry file, and for that they have been pilloried mercilessly by all sides: from the right for the carbon tax, and from the left for supporting pipelines. But for its critics from the left, in particular, my answer is: be careful what you wish for.

      Thank you, Sir.

      • Geoffrey Pounder

        December 5th, 2018

        “Environmental absolutists”. You mean people who accept the best available science?

        “who rant against the Notley-led Alberta NDP government as being no better than either its current right-wing rivals or its PC predecessors.”
        No, actually, on the climate front Notley’s NDP is worse.
        When it comes to oilsands expansion, Notley and Kenney are on the same page. Notley’s oilsands expansion agenda locks AB into fossil fuel development and rising emissions for decades. Putting Canada’s inadequate targets out of reach.

        Trudeau’s and Notley’s brand of denialism lulls the public into a dangerous complacency and paralysis.
        Notley has led many of her progressive followers to embrace a fossil-fuel future and deny reality. By pushing pipelines, the NDP sends a clear message that climate change is not a global emergency. Unforgivable.

        NDP policy eliminates the progressive option and all hope for real climate action in AB.
        Playing on her undeserved credibility on climate and otherwise progressive values, Notley is far more likely to get pipelines built. Kenney will be impotent and isolated.

        The AB NDP was a force for good in opposition. Now we have zero oil industry critics in the AB Legislature. And there won’t be any after 2019.
        Banished to the opposition benches, the NDP will be able to say nothing about oilsands expansion, oil & gas pollution, and climate inaction — because they sided with Big Oil when in office.

        “protecting everyone from farm workers to home buyers”
        GSAs and farm safety regulations are commendable. But not much comfort on a planet suffering raging wildfires, deadly heat waves, prolonged drought, vanishing glaciers, interminable sea level rise, ecosystem collapse, etc.

        How can Notley brand herself “progressive” when she knows that climate change disproportionately affects women and children, and the global poor?
        The environment underlies all we do, the economy, and life itself. If you are not progressive on climate change and the environment, don’t call yourself progressive.

        Take a gander at this, and then decide whether you want to enable the betrayal of future generations or take a stand against it.
        “The November crisis”

        • Rob McEchren

          December 6th, 2018

          “You mean people who accept the best available science?”. No Geoffrey, he means those who, in their smug conviction and certitude, have ventured well beyond rational argument and teeter on the edge of hubris. You know the type. Polemics who relish the opportunity to vent their contrived, well rehearsed rhetoric at any perceived injustice.
          I am certain that is who he was referring to Geoffrey, not some ‘Bogeyman’.

      • Rob McEchren

        December 6th, 2018

        Your final point needs to be repeated as loudly and often as possible. Hard to believe there are so many that are willing to cut off their nose just to spite their face.

    • Geoffrey Pounder

      December 5th, 2018

      Theo Nelson wrote: “A single term victory and then losing to go back to the crap governance the UCP will do is unacceptable.”

      Unacceptable and inevitable.
      The argument is premised upon the notion that if and only if Notley out-conservatives the (pseudo-)conservative UCP, she might have a shot at re-election.
      Wherever this argument appears, the premise is always assumed, never argued or substantiated.

      Reality check: A NDP win in 2019 is not on the menu. Notley was always a one-term premier.
      The numbers indicate UCP victory is inevitable. Mathematically, it is impossible for the NDP to prevail against a united conservative party. Even the NDP’s unprecedented 2015 numbers would not yield such a result. (Combining PC and WRP votes in 2015 yields 60 seats for the UCP to 25 for the NDP.)

      Theo Nelson wrote: “To not lose, and be the governing party for a second term, the NDP must do everything it can to ensure a healthy economy regardless of the long term effects.”
      And to be the governing party for a THIRD term, the NDP must again ignore reality, deny science, defy the IPCC, fuel pipeline hysteria, repudiate progressive values, and pander to the right.
      Some people may ask: “If we are stuck with conservative policies, why don’t we just vote for the real thing?”
      Which is precisely what most on the right will do. Right-wingers give Notley no credit for anything that goes right and blame her for everything that goes wrong.
      UCP supporters wouldn’t vote NDP even if Notley built a billion pipelines. She has only managed to alienate her own.
      Those on the left may ask: “If voting NDP gives us pseudo-conservative policies, why bother?”

      If the NDP are only going to serve one term, they have nothing to lose by sticking to their progressive principles and heeding the dictates of science. They have nothing to gain by abandoning their progressive principles and flouting science. Show Albertans, if only for one term, what govt with integrity looks like.

      • theo the fool

        December 5th, 2018

        Geoffrey – I am seriously curious what you think an NDP government sticking to the progressive principles you make reference to, would have done.
        – Jack up the royalties on fossil fuels? I personally would have been happy with that.
        – severely curtailed tar sands production or perhaps, shut the tar sands down (is that possible)?
        – put a huge carbon tax in place (it’s working out well for Macron I understand)
        – Anything else? I am rather limited in imagination.

        – All three? After all, we must do now for the benefit of the world.

        I suspect rioting in the streets and across the province long before the French ones would have occurred. Just sayin’. While I admire your desire to address climate change because it is the single greatest threat to civilization, I seriously doubt your understanding of the political process, particularly in democracies.

        • Geoffrey Pounder

          December 6th, 2018

          Notley’s NDP won a majority in 2015. What does that suggest to you? A mandate to act on their campaign promises?
          Not much justification for riot if a legitimately elected majority govt acts upon its mandate.
          Sure, people are free to protest. But any acts of violence would be seen as illegimate across the country. The ticket to change is the ballot.
          If the NDP were not free to act on its mandate, why bother with elections?
          Timidity, not boldness, undermines the govt’s mandate. Timidity is a sign of weakness. Boldness is a sign of strength.
          Desperate times call for desperate measures.

          Are you suggesting that democracies cannot act on the best available science and respond to planetary emergencies?
          Are you suggesting that democratically elected leaders cannot stand on the right side of science and history?
          On the understanding that Notley was a one-term premier, the NDP was free to act on its mandate, within reason.
          Accepting and acting on the best available science is within reason.
          Responding to the greatest crisis humanity has ever faced is within reason.
          Ignoring the science, defying the IPCC, and failing to respond appropriately to climate change are not within reason.

          Notley has been compared (or compared herself) to Lougheed, Thatcher, and Nixon. Why should she wield her steely resolve for oil companies, but not for humanity, future generations, women, children, the poor, and life on Earth?

          Against huge opposition, Roosevelt took on the New Deal and Lend-Lease to support Britain in her hour of need.
          Against fearsome opposition, Lincoln took on the separatist South and slavery. For five long, tumultuous years.
          Notley and Trudeau dubbed themselves “climate leaders”. Followed by immediate capitulation to Big Oil. Pathetic.

          – Start with a massive public education campaign on climate change. Make climate change a core subject in the schools. Let the Premier address Albertans on prime time, with scientists not Big Oil CEOs standing behind her. Not to push pipelines or fuel hysteria about discounted oil, but to push climate action based on the best available science.
          – Increase royalties, as per the campaign platform on which the NDP was elected. Capture some of the huge profits earned by integrated oilsands companies, who supply their own refineries with cheap feedstock.
          – Don’t push pipelines, over which the province has no direct authority, anyway.
          – No new oilsands projects. No expansion. No fraudulent oilsands caps.
          – Measure and report oil & gas emissions accurately.
          – Chart a course for the managed decline of the oilsands industry over several decades, with a phase-out by 2050 at the latest.
          – Provide a just transition for oilsands workers, as for coal.
          – Set out a grand vision for economic and environmental sustainability for AB and Canada for the 21st century and a road-map and timeline on how to get there (including science-based emissions targets).
          – Where possible, enlist the support of other parties. Make it clear that climate change must not be turned into a political football for partisan politics. Any party that does so delegitimizes itself.

          Rioting in the streets to accelerate climate disaster. Rioting in the streets to prevent remedial action against such disaster.
          Sounds insane.

  4. David

    December 4th, 2018

    For those of us old enough to remember, “zap – you’re frozen!” In the mid 1970’s, the Federal Liberals ridiculed the PC’s bold idea of wage and price controls (so much for the free market), won the election and then implemented them anyways. So much for Conservatives being free enterprise.

    To the Alberta government’s credit, it handled this crisis differently – rather than ridiculing an idea advocated by other parties, it said it would study and consider it, just did that and then implemented it with a bit of modification. So far it seems to have worked well. Of course, like any idea not everyone will benefit or agree, so Imperial Oil’s lack of enthusiasm is predictable and understandable. Now, the Premier doesn’t govern Alberta only to please Imperial Oil, nor should she. Perhaps one of the best things to come out of this brief debate was the realization that Alberta’s interests and the interests of some in the energy industry are not always the same. Now I don’t want to be too harsh on Imperial Oil here, I suppose the CEO is just doing his job here – looking out for his shareholders. However, likewise the Alberta government also needs to do its job, which is looking out for Albertans.

    I wouldn’t be surprised if there are a few bumps along the way of this production curtailment, but so far so good. I know the last few years have been tough ones for many in the energy industry, but it would be nice if the black clouds of gloom finally start to lift. It seems like there has been one problem after another for the last several years, but at some point I wonder if things can only start to get better. Maybe this is a turning point, I hope so.


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