Canadian oil surges on inventory draw and a price pledge from Alberta’s premier

CALGARY (Bloomberg) - Canadian crude rebounded from a one-year low after inventories fell and Alberta’s premier pledged to defend prices.

The spread between Western Canadian Select and the U.S. benchmark has narrowed 15% since Jan. 16, when it hit the biggest discount in more than a year. Genscape Inc. reported that crude inventories in the region fell by more than 3 million barrels last week, according to traders familiar with the numbers. The stockpiles have dropped as Alberta exited a cold snap that slowed oil transport and caused disruptions to some local refineries.

The rally comes as crude-by-rail shipments also have risen and some additional pipeline capacity came online. Canadian National Railway Co. said it anticipates shipping about 250,000 barrels a day of oil in the first quarter, close to a record rate. In December, Premier Jason Kenney said total crude-by-rail exports are set to reach 550,000 barrels a day.

The discount had widened out to almost $25 a barrel earlier in the month after Alberta’s government relaxed production curtailments and carved out new exemptions for oil shipped by rail and conventional oil production. The widening spread drew warnings that a new glut was forming in the market, prompting Kenney to pledge to defend local prices.

Taking a page out of the OPEC playbook, Kenney delivered a speech in the mountain resort of Lake Louise on Jan. 17 in which he said that mandatory crude production curtailment wouldn’t be eased in March and if “we see a substantial increase in the differentials, we will act to protect the value of the resource.”