Oil prices jump as Canadian wildfire threatens output

Toronto-Canada (May 5)  Oil prices pushed higher on Thursday, as a raging wildfire near Canada’s oil-sands district and fighting in Libya threatened production in those countries.

West Texas Intermediate crude-oil futures CLM6, +3.27%  climbed $1.35, or 3%, to $45.12 a barrel, after gaining 13 cents on Wednesday. Brent crude for July delivery LCON6, +2.64% the global oil benchmark, rose $1.15, or 2.6%, to $45.75 a barrel. Brent had a losing session Wednesday, closing down 0.8% to $44.62 a barrel on London’s ICE Futures.

A state of emergency was declared on Thursday in Canada’s Alberta province, according to media reports. A wildfire that began Sunday has forced 88,000 residents of the city of Fort McMurray to evacuate.

The out-of-control blaze halted operations at one major oil-sands mining operation on Wednesday, while another curtailed production.

Canadian wildfires force evacuation of entire city
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More than 80,000 people fell under a mandatory evacuation order as wildfires threatened Fort McMurray, Canada. No estimates were available on the number of homes and businesses damaged or destroyed. Photo: AP

Mandatory evacuations of workers have halted some operations, while camps designed to house temporary workers are being used to house the thousands of people fleeing the fires. Some 1,600 buildings have been destroyed by the fires.

“As more information comes in, it appears that the impact on production of the wildfires in Alberta will be significant,” said analysts at JBC Energy in Austria.

The analysts noted that Royal Dutch Shell PLC RDSA, +0.32% RDS.A, -2.47%  shut its Albian Sands mine and Suncor SU, -2.20%  shut its base plant, while producers Syncrude Canada and Connacher Oil & Gas Ltd. CLC, -2.50%  also reduced output in the region.

“Taken together this amounts to some 0.5 million b/d of capacity that is currently offline. Infrastructure is being affected too, with the 560,000 b/d Corridor pipeline shut down and movement along the 140,000 b/d Polaris pipeline significantly curtailed. On top of that, trains are not operating near Fort McMurray, according to the Canadian National Railway,” said the analysts.

Meanwhile, in Libya, tensions between rival factions stopped a Glencore cargo from loading. An oil official from Tripoli warned that the country’s oil output could drop by 120,000 barrels a day if the Benghazi-backed National Oil Corporation set up by the rival eastern government continues to block tankers, Reuters reported.

News of the Canadian wildfires served to push crude higher earlier during Wednesday’s session, but prices came under pressure after a report from the U.S. Department of Energy showed a larger-than-expected weekly build of crude stockpiles. Inventories increased by 2.8 million barrels for the week ended April 29 to a new weekly record.

The data also showed a surprise rise in gasoline stockpiles. Gasoline for June delivery RBM6, +0.95%  rose 2 cents on Thursday, or 1.4%, to $1.5077 a gallon, after finishing 1.6% lower on Wednesday.

Source: MarketWatch