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Alberta's oil production cuts weigh on economic forecasts

By Karen Graham     Jan 23, 2019 in World
Calgary - Alberta's oil production cuts that went into effect in December, were aimed at shrinking a costly glut of Canadian crude. Now there are concerns that prolonged output cuts will impact the economic performance of the province.
Both the Conference Board of Canada and Scotiabank Economics have reassessed their stand on Alberta's growth forecasts for the year — cutting growth rate expectations for the province's economic growth in 2019.
On Tuesday, Premier Rachel Notley responded to the news, saying the government was expecting a "slight hit" to Alberta's gross domestic product (GDP) because of the output cuts, adding this must be weighed against the government doing nothing at all.
"We also believe that we're going to see quite a bump in terms of GDP near the end of the year, and into 2020, as a result of these actions," Notley told reporters in Calgary, adding the government is also working on moving more oil by rail and in pipelines.
Notley's plan, that went into effect on January 1, requires an 8.7 percent production cut amounting to about 325,000 barrels a day, in raw crude oil and bitumen. Looking at the past month, the cut appears to be working. The Canadian and U.S. crude benchmarks have narrowed substantially. On Monday, the differential was under $12 US a barrel. Last fall, the gulf was over $50.
Most oil sands producers are feeling positive about the cutbacks and the rising price of their crude oil. Tom McMillan, a spokesman for oilsands producer Pengrowth Energy Corp said two weeks ago his company has been complying with the cutbacks and the better prices have helped.
File photo: A pipeline under construction from Fort McMurray  AB to the Scotord Plant in Fort Saskat...
File photo: A pipeline under construction from Fort McMurray, AB to the Scotord Plant in Fort Saskatchewan
A possible hit on the province's GDP
The Conference Board of Canada's chief economist, Pedro Antunes, wrote in a commentary published Friday. Basically, he said that the production cuts could result in shored up prices while keeping royalties from declining.
But Antunes said it is also "certain to have an impact on the province's economic performance." If the output cuts last through the year, it very well could shave 1.6 percentage points off Alberta's previously anticipated headline GDP growth rate for 2019, anticipated to be above 2.0 percent.
"This is a big, big hit," Antunes said in an interview Tuesday, pointing out Alberta's oil sector is responsible for about 25 percent of the province's income. "When you cut production by… the anticipated cuts that were put in place, of course, that is going to have an impact on the volume of production and the economic activity associated with that."
In analysis from Scotiabank, they also suggest a hit on the province's economy is possible, although they say they expect Alberta to add just 0.2 percentage points to the GDP in 2019, "far less than the 0.7 percentage point boost last year."
More about Alberta, oil production cuts, GDP, Wish List, Economic downturn
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