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Page added on May 6, 2016
Raging wildfire in Canada fuels oil prices
Canada’s oil-rich province of Alberta is under siege from massive wildfires. And that’s threatening key oil facilities.
Huge forest fires have already torched at least 1,600 homes and forced the evacuation of about 88,000 people in the region, including the entire population of the oil sands town of Fort McMurray.
Forty-nine wildfires were still burning as of Friday morning, and wind gusts of up to 25 miles per hour were expected. Some 1,110 firefighters, 145 helicopters and 22 air tankers are currently battling the fires.
The disaster has caused Royal Dutch Shell (RDSA) to shut down its Albian Sands facility and other producers have had to reduce the amount of oil they are pumping as well.
“This fire is raging near where a lot of the oil activity takes place. This is a very real event and it’s taking supply off the market,” said Anthony Starkey, energy analysis manager at Bentek Energy.
The fire threatens up to 1 million barrels of daily oil production capability, according to Bentek Energy, which noted that some of that output was already offline for seasonal reasons.
The supply outages from Canada — one of the world’s biggest oil producers and a major source of U.S. imports — sent oil prices soaring on Thursday. On Friday, prices retreated to trade near $44.25 a barrel.
A number of major oil companies that operate in Canada have been impacted by the forest fire, including Shell and Suncor Energy, (SU) Canada’s largest oil producer. Even though Shell’s Albian Sands operation is far from the fires, the company said it shut down production to focus on “getting families out of the region.” Shell also opened its work camp, the Albian Village, to Fort McMurray residents who were evacuated.
The fire has global ripple effects because it could force the U.S. to import more oil from elsewhere like Saudi Arabia.
After bottoming at $26 a barrel in mid-February, oil prices have raced back to nearly $50 a barrel. The rally has been fueled by hopes of dramatic cuts to production in the U.S.
However, the focus on Canada has shifted attention away from the latest evidence that a huge glut of oil continues to exist. U.S. oil inventories soared by nearly 3 million barrels last week, according to a U.S. Energy Information Administration published on Wednesday.
Starkey said that while domestic stockpiles of oil are not growing as quickly as last year, they are still rising at an “extreme” pace on a historical basis.
“Things are improving, but it’s still relative. We are still quite oversupplied,” said Starkey.
13 Comments on "Raging wildfire in Canada fuels oil prices"
Boat on Fri, 6th May 2016 1:06 pm
1 mbpd is 2/3 of the glut.
AJY on Fri, 6th May 2016 1:58 pm
Add 120,000 if Marsa al-Hariga has to close, 130,000 from Nigeria explosion, 200,000 from Venezuela degradation, 80,000 per month from USA decline, 150,000 from North Sea maintenance, 200,000 from China cut backs and suddenly we’re short. And by 2018 all the delayed projects from the $500 billion plus development cut backs are going to start being seen so we’ll be another 4 to 6 million short.
shortonoil on Fri, 6th May 2016 2:01 pm
Guess the market doesn’t see this as much of an event. Price for WTI are up 36 cents today.
As we have been saying it will take a cut of at least 4.5 mb/d of production to bring prices back to this curve:
http://www.thehillsgroup.org/depletion2_0 22.htm
Which would put the price of oil at $66/ barrel. Next year it will be $55.
The excess inventory situation is a consequence of the depletion cycle, and it is not going away. Oil no longer provides the energy required to power enough economy to support its own demand. Prices will continue to fall as the average barrel approaches the “dead state”. As they do the world will become littered with the remains of bankrupt oil producers, and the companies that supported them. The market, evidently, is becoming aware that burning up a few tar sands producers is not going to change that dynamic.
http://www.thehillsgroup.org/
onlooker on Fri, 6th May 2016 3:01 pm
I have a question Short. Will not eventually the price per barrel have to rise as a consequence of consumers needing to buy oil to fuel the absolute necessities ie. goods and services that oil powers. Meaning at some point demand will prove inelastic.?
Apneaman on Fri, 6th May 2016 3:16 pm
The cancer’s growth obsessed mathematicians/high priests weigh in. Fuck your kids, GDP is all that matters. The universe would not exist with out monkey GDP right?
Fort McMurray fire has economists cutting growth forecasts for Canada
‘If we assume those shutdowns last for 2 weeks, they would subtract 0.5% from May GDP’ — Royal Bank
http://www.cbc.ca/news/business/fort-mcmurray-economists-1.3570061
shortonoil on Fri, 6th May 2016 4:48 pm
“Meaning at some point demand will prove inelastic.?”
To answer that you have to define necessity. Food is a necessity, but is sirloin steak a necessity? One can actually survive on corn meal. Transportation is a necessity, but a new Rolls Royce is not. A bicycle can work just as well, or walking. The in-elasticity that you refer to is not a constant, it is a variable. As the depletion cycle goes forward, which it must, that definition will change. As various industries begins to disappear, and people lose their jobs the concept of necessity will change.
As previously mentioned we are now in the cannibalization stage. Assets must now be consumed to continue the production of oil. Oil companies are consuming their reserves to continue pumping oil; equipment is being worn out, and not replaced. They are now picking the easy to reach fruit. As time progresses and more people find their incomes becoming inadequate to supply the necessities, sirloin steak will be replaced with hamburg, then chicken, then eventually corn mill. Some people will always be able to supply their necessities; it is just that it will be what they need; not what they want. The end of the oil age will be the beginning of a whole new understanding of the world around us, and how we fit into it.
onlooker on Fri, 6th May 2016 5:07 pm
Thanks Short. Yes alot of superfluous stuff and waste will be eliminated by necessity.
makati1 on Fri, 6th May 2016 7:01 pm
Water is a necessity. Oil and its oily products are not. It is that simple.
All oily things can disappear and you can still live. Humans managed for thousands of years without oil of NG or even much, if any, coal. But they did not have to deal with a planet that is heating up and rearranging climates in a matter of decades or even years. THAT is the cause of our coming extinction. Not the loss of oil or NG or coal.
Truth Has A Liberal Bias on Fri, 6th May 2016 10:15 pm
The model put forth by short is horse shit. And short doesn’t know what inelastic means. That’s why he deflected onlookers question.
shortonoil on Sat, 7th May 2016 7:32 am
“The model put forth by short is horse shit. And short doesn’t know what inelastic means. That’s why he deflected onlookers question.”
I’ve got a copy of Samuelson right here; the 15th edition. Engineers take economics because it’s a gut course; easy A+ to raise the accum. What you don’t understand is calculus. In the real world the inelastic that you refer to is actually a time rate of change for P&Q. Its a deferential equation. Of course, that goes over the head of the stupid Econ majors like you.
Davy on Sat, 7th May 2016 7:55 am
Hill’s group “dead state” of oil in relation to our modern civilization must be a guiding collapse process paradigm. A similar process paradigm exists with the economy and debt, population growth, and abrupt climate change disruptions. This is it and this is our existential trap. It should be what we base all future decisions on.
We must prepare for food and fuel shortages and the destruction of the global social fabric. Once these mega forces converge and combine in enough intensity the resulting decay, decline, and disruption will bring the global economy to its knees. Food and fuel will be in shortage and all economies of the world in crisis.
Do we have 10 years? There is no way to tell how long we have except end point markers. We know growth cannot last with debt increasing, oil declines, and food production declines. Population cannot grow much further. Climate disruptions will accelerate with a blue ocean in the Arctic. If we are lucky we might have a status quo of a decade but that will be a status quo under compression and crisis. Decay and disruptions will be everywhere. War is an ever present reality that could accelerate this process.
It is the approach of these converging mega-predicaments that will bring the end of globalism. It is how they combine and manifest themselves then it is how we respond and react to them. We have minimums that must be met. It will be the approach of these minimum operating variables that dictate the end game.
joe on Sat, 7th May 2016 8:36 am
Tight oil is showing just how unreliable it truly is. Tight oil is a cap on easy oil bull markets, thats all.
That said, Iran hasnt even got started yet going back into the markets. Saudi will eventually have to cut on its own. For a warrior people like the Arabs, they will see it like losing to Persians.
Apneaman on Sat, 7th May 2016 5:12 pm
Shift in the Wind May Push Gargantuan Fort McMurray Fire Toward Tar Sands Facilities on Saturday
“Viewing the massive scope and extent of the blaze, one can see why an evacuation convoy of 1,500 vehicles — composed of members of the fire response team and a number of stranded evacuees from the tar sands industrial zone — was unable to flee the region earlier on Friday. BBC News reports indicated that the convoy encountered walls of flames 200 feet high and was forced to turn back to a city that finds itself surrounded with walls of flame on every side. This was the second time in two days that the evacuation convoy attempted to leave the fire zone and the second time that all ways out were found to be blocked by the fires. Thousands of people remain stranded in the fire zone to the north of the blaze and officials say it will take four days to move them once a clear pathway out is found”
https://robertscribbler.com/2016/05/06/shift-in-the-wind-may-push-gargantuan-fort-mcmurray-fire-toward-tar-sands-facilities-on-saturday/